Sunday, January 8, 2017

How long should I keep my tax records?

The IRS requires every taxpayer to keep records for everything you claim on your return. If you don't have records, the IRS will not allow you to claim it. Generally, you should keep your personal (not business) tax records for ten years after the date you filed the return. (That is when the collection statute expires.)

If you have a carry forward, you need to keep the credits for the duration of the credit.

If you are itemizing your deductions, keep every receipt. Organize them by type and by month. Photocopy them or scan them, because the ink on the receipts fades over time and you may need that information later.

Keep notes about the purpose of the expense.

Keep a daily journal of your business transactions. Bonus points if the receipts and the expense notes correlate with the daily journal.

Keep cancelled checks, bank statements, and credit card statements to go with the receipts.

Stay away from paying cash. It is impossible to reconcile your records when you pay cash.

CHARITABLE CONTRIBUTIONS

When you donate things to thrift stores, they give you a nifty receipt for you to handwrite the items you donated and the value of the donations.

But the form they give you isn't enough. 

Things you need to know:
  • The cost or selling price of the item
  • Sales of comparable items
  • Replacement cost
  • Opinions of experts (appraisals)

Just to be safe, use the information found on Form 8283 when keeping records of donations.
  • Date of the contribution
  • Date acquired by donor 
  • How acquired by donor 
  • Donor’s cost or adjusted basis 
  • Fair market value (see instructions) 
  • Method used to determine the fair market value

Places like Goodwill have an online valuation guide for determining the fair market value of donations.

Stay Away From Shady Tax Return Preparers

I absolutely abhor dishonesty. I hate it when vulnerable people are taken advantage of.

Here is what to look out for:

People who encourage you to take deductions for which you don't qualify. There is no such thing as a minimum amount to stay under the radar. If you don't have the documentation, don't claim it! Just don't.

They negotiate their fees according to your refund amount. Watch out for the preparers who don't operate on a flat fee. If they charge a percentage of your refund amount, run.

Tax return preparers who operate out of their home or in shady offices. I've heard so many horror stories of people providing their personal information to someone, only to have them disappear overnight...with the victim's information and refund. And then the victim can't even remember who prepared their return to report it to the police. 

Professional tax preparers are required to include their information on your return.


Make sure they sign this.

Which reminds me...MAKE SURE YOU LEAVE WITH A SIGNED COPY OF YOUR RETURN.

Scammers have been known to inflate numbers to enlarge the refund before submitting the return to the IRS. Then they change the account number, so the refund is deposited into their own account. And the taxpayer is none the wiser. 

Check and double check your account numbers on the return. If there is a typo and it's deposited into the wrong account because of your error, the IRS will not issue you another refund check.

This is a jurat:


This means you are responsible for everything on the return. Even if the tax preparer put incorrect information on the return. You (and only you) will be held responsible. 

Please be careful and be patient. It'll save you money in the long run.

Repeat after me. Refund Anticipation Loans are bad!

If you are filing a simple return, there is no reason for you to pay a preparer to file a return for you. Especially when you might be able to file your return for free. There are also volunteers who prepare some returns for free.

Volunteers Will Not Prepare 
• Schedule C with losses
• Complicated Schedule D (capital gains and losses)
• Form SS-5 (request for Social Security Number)
• Form 8606 (non-deductible IRA)
• Form 8615 (minor’s investment income)
• Form SS-8 (determination of worker status for purposes of federal employment taxes and income tax withholding)
• Parts 4 & 5 of Form 8962 (Premium Tax Credits)

DON'T FALL FOR REFUND ANTICIPATION LOANS

Even if you file early, you won't get your refund early. If you're claiming the Child Tax Credit or the Earned Income Credit, the IRS won't release your 2016 refund until February 15, 2017.

What are refund anticipation loans? 

Tax preparers charge people (who really can't afford it) hefty fees to prepare their return. Instead of paying the tax preparer upfront, the tax preparer takes the fees out of the refund. Instead of the taxpayer receiving the refund directly from the IRS, the tax preparer issues them a prepaid card.

PLEASE DON'T DO THIS!

The simple returns you're paying hundreds of dollars for probably takes 15 minutes to prepare.

Tuesday, December 27, 2016

New Year Resolution: Calculating Car Payments

Automobile expenses (car payment + insurance + gas + maintenance + registration) should not exceed 20% of your net (after tax) income. 


If you're financing a car, "they" say the terms shouldn't exceed four years. But those five and six year loans are awfully tempting with their lower monthly payments. 

Those long term loans are hurting you and benefitting the financial institution.

When buying a car that is within your budget, shoot for the less expensive car. Even if the salesperson offers you a lower monthly payment for the flashier car. You'll end up paying more in the long run. 


And if you're going to buy a car, you need to read the 4 Square Rip-Off.

New Year Resolution: Set Aside 10% for Yourself

If you haven't already done so, set aside 10% of your gross (before taxes) for yourself.

(Need help calculating 10%? Move the decimal in your paycheck one space to the left.)


Babe Ruth's check was made out for $6,595.38. Move the decimal one space to the left.

10% = $659.54.

Set that 10% aside and then forget about it. Seriously, don't think about it. Not even when you find that super amazing once in a lifetime deal.

Not even then.

The best way to do this is to take it straight off the top, before you even see it. If your employer allows you to do an allotment, this is the way to go.

Open a savings account. There are online savings accounts, if you're interested.

If you can't do 10%, then now is the time to be brutally honest with yourself. No excuses. Refer to the budget you made earlier and figure out where you're going to cut back. If you can't find 10%, you're living above your means.

New Year's Resolution: Live Beneath (not within) Your Means

Set a goal. A realistic goal. Not one that you're going to forget about next week.

Many people (myself included) search for happiness in things. There's nothing more exhilarating that finding a good deal.

(Can I get an amen?)

It's impossible to convince someone to dial down their lifestyle if they don't want to do it. This is something you have to do for yourself. You have to find happiness within yourself, not in your objects.

In order to get your finances under control, you must be brutally honest with yourself. Now is not the time to tell little white lies.

Get a notebook. One that can be dedicated solely to your budget. If you'd like, here is a budget worksheet.

You're welcome.

At the top of the list, write the amount for your take home pay from every source of income. Beneath that line, make a list of all of your expenses: tithing, utilities, vehicle payments, insurance.


At the bottom of the list, write down everything else you spent money on last month. (This is where banking apps come in handy.) If you're like me, there was a whole lot of fast food and coffee.

OBJECTIVE:

Find where you can cut back. Then do it.

Locate the amount for your total living expenses. Then multiply that by 6. That is the amount you should aim to have in your savings account.

You can do it.