How Long Should You keep Your Tax Documents?
How Long Should You Keep Your Tax Documents?
The short answer to this question is at least three years for each tax year and at least five if you are filing a business return.
The IRS can audit any tax return up to three years after filing as long as no fraud is involved. Longer if the IRS feels you have significantly under reported your income.
The three years doesn’t start if you haven’t filed any prior year’s returns so do file on a timely basis.
Be sure to save supporting tax documents as well such as your W2’s, dividend and interest statements, brokerage and mortgage documents.
In order to know your proper cost basis, keep detail records of your stock purchases, dividends and in the case of mutual funds, capital gain distributions.
When you do finally dispose of any financial or sensitive document make sure you shred the documents to keep the information away from prying eyes and to protect yourself against identity theft.
In the case of real estate, keep records and documentation for any home improvements as they may add to your cost basis which will in turn lower your capital gains when you do sell your home.
On the subject of keeping records; keep in a safe place such as a bank safety deposit box or home safe, important financial documents along with a list of credit card numbers, passport numbers and other financial data for safe keeping.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
Tax Changes for 2012
Tax Changes for 2012
For further tax related information visit my income tax planning section.
Here’s a list of the some of the most important tax changes that may affect you:
The thresholds for tax brackets will increase. For a married couple filing jointly, the point at which the 15 percent bracket moves up to 25 percent will rise to $70,700. Single filers, the 25 percent bracket will start at $35,350.
The personal and dependent exemption will increase to $3,800, from $3,700.
Standard deduction for a married couple filing jointly will increase by $300. For single filers and married couples filing separately, the standard deduction will increase by $150.
The amount you can put into a Roth IRA as a regular contribution is reduced or eliminated if your income goes above certain levels.
The maximum allowable contribution to 401(k) pension plans increases from $16,500 in 2011 to $17,000 for 2012. The increase also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.
The maximum earned income tax credit (EITC) will increase to $5,891, up from $5,751 in 2011. The credit still remains a refundable credit which means even if your tax liability is zero; you will still receive the tax credit.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 55.5 cents per mile for business miles driven
- 23 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
For further tax related information visit my income tax planning section.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
When Should You File Tax Form 1040-ES?
When Should You File Tax Form 1040-ES?
For further tax related information visit my income tax planning section.
Estimated tax for individuals – is a method used to pay tax on income that is not subject to withholding’s. Some example is earnings from self-employment, interest, dividends, rents, alimony, etc.
You should also consider making estimate tax payments if you receive other taxable income such as unemployment benefits and the taxable portion of your social security if applicable.
Who must make quarterly estimated tax payments?
- You expect to owe at least $1,000 after subtracting your withholding and your applicable credits.
- You expect your withholding and credits to be less than the smaller of:
a. 90 % of the tax to be shown on your prior tax year, or
b. 100 % of the tax shown on your prior year tax return.
Form 1040-ES is divided into four quarterly payments due as the following:
- January 15
- April 15
- June 15
- September 15
The dates might differ from year to year if the April deadline is extended in any year.
What happens if I fail to file the quarterly estimate?
If you fail to file your estimates and after completing your tax return you may owe a penalty when you file your tax return. The penalty is imposed on each underpayment for the number of days it remained unpaid. A penalty may even apply if you have made an overpayment on your tax return.
The form is quite easy to fill out as the only information requested is name, address, social security number and amount you are submitting for payment. Don’t forget to write your social security number on your check along with the tax year the payment is to be applied to.
For further tax related information visit my income tax planning section.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
How to Choose a Tax Preparer
How to Choose a Tax Preparer
For further tax information visit my income tax planning section.
It makes sense when taking your tax information to a tax professional to do a little research as to costs, qualifications and experience.
- Check the person’s qualifications – regulations require all paid tax return preparers to have a Preparer Tax Identification Number (PTIN) and complete ongoing education tax courses.
- Find out about their service fees – costs could swing widely from one tax firm to another.
- Inquire about their work experience – many of the major tax firms hire new preparers every year as their turnover is high. You may end up with an inexperienced preparer.
- Review the entire return before signing it – You are responsible for what is on your tax return. Review and ask questions if something is unclear or doesn’t make sense to you.
- Be organized – To assist the preparer in doing a good job, be organized with your tax records before you meet with your tax professional. Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
- Complex returns – interview a potential tax professional before you start especially if you have a complex return. Don’t be afraid to ask for a more experience preparer if you don’t feel comfortable with a preparer’s skills and knowledge.
- Make sure the preparer signs the form and includes his or her preparer tax identification number.
If you need a more experienced and educated professional I suggest you seek an “Enrolled Agent”. An enrolled agent is an individual who has earned the privilege of practicing that is, representing taxpayers, before the IRS. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle.
For further tax information visit my income tax planning section.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
Tax changes for Investors
Tax changes for Investors
For further tax related information visit my income tax planning section.
The tax changes effect regular investment transactions and not qualified accounts such as IRA, Roth and other retirement accounts.
For your 2011 tax return, the law applies to stock transactions and will change how your brokerage statements will reflect your cost basis for tax purposes.
Starting in tax year 2011, if you sell a stock, your broker must report to the IRS the amount you paid for that stock — that is, your cost basis which is your actual cost of purchasing the stock or mutual fund.
When calculating a mutual fund you do have several choices when it comes to figuring cost basis. Most common method is average cost basis based on multiple purchases and distributions over a period of time.
By February, brokerage firms must mail to their investors and to the IRS, cost-basis information on the revised Form 1099-B. Investors will use that information to fill out the new tax Form 8949, which they will then use to complete the revised Schedule D.
Instructions on how to fill out tax form 8949 can be found at the IRS website link provided to your left. Depending on the type of transaction you could possibly need up to six copies of the form.
For further tax related information visit my income tax planning section.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
Qualifications to file tax return for free online
Qualifications to file tax return for free online
For more detailed information visit my income tax planning section at my website DFI Wealth Management.
For tax year 2011 you might be wondering who gets to file their tax return for free online. The IRS has set their guidelines as the following:
Adjusted Gross Income – $57,000 or less
Believe it not but your age is also a factor in determining whether or not you get to file for free along with what forms and schedules you might need to prepare your return.
In most cases state returns are not included therefore a fee will be required if you have to also complete a state return.
Depending on which tax company online services you will be using will determine whether you file for free or not. For example TurboTax AGI limits you to $31,000 or less. HR Block the maximum AGI is $57,000 but you cannot be older than 52.
The IRS also offers:
Free File Fillable Forms.
Everyone is eligible to use Free File Fillable Forms, which are online versions of the tax paper forms designed for people comfortable preparing their own tax returns.
This option does not offer state tax returns and performs only basic calculations.
Here’s how Free File Fillable Forms works:
- Create a password protected login so you can sign in and out of your return
- Choose your form: 1040A, 1040, or 1040 EZ
- Do the math using the provided calculation mechanism
- E-file your return (you’ll need last year’s AGI or your self-select PIN). Or you may also print your return.
If you’re used to doing your Federal return using IRS paper forms, Free File Fillable Forms will look familiar.
Entering your tax information is just like filling in IRS forms.
Don’t forget you have until April 17th this year to file your return.
For more detailed information visit my income tax planning section at my website DFI Wealth Management.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
Tax Software versus Tax Preparation Professionals
Tax Software versus Tax Preparation Professionals
Visit Income Tax Planning section for in-depth discussion on major tax issues and software programs.
Tax seasons is upon us and we need to make a decision whether to attempt to complete our tax returns on our own or allow a tax professional to do so.
You have four choices when it comes to preparing your taxes; do it yourself either online, software you install on your computer, by hand or have a tax professional do it for you.
My recommendation would be to do it yourself unless you have a complex financial life requiring many tax forms and schedules. That means either purchasing a software program such as Turbo Tax, HR Block at Home or TaxAct. There are other programs available but the three just mentioned are the most popular. Each of software publishers offer an online version though I would suggest the CD or downloadable version especially if your tax return typically requires numerous tax forms and schedules.
The cost of these services vary from free if you qualify, upward to hundred dollars or more. Each the guidelines for getting it done for free changes so check the requirements to see if you qualify. Generally the state returns do charge a fee even if the federal is free, there are exceptions depending on the state.
If you have a complex return or just don’t want to be bothered then seek a tax professional such as a CPA or tax firms such as HR Block. Be careful when choosing a professional as the experience level differs greatly from one professional to another.
Suggest you prequalify your tax professional by asking about their training and how long they have been preparing tax returns. Many tax professional are fairly new at tax services like HR Block and they have a high turnover rate each year so you might be getting an inexperienced preparer.
For further information on tax software and tax planning visit my Income Tax Planning section. I have provided online links to the major tax software publishers if you wish to purchase their products.
Recent Tax changes:
- Standard deductions are higher
- Exemptions have been increased
- Tax brackets have been raised
- Tax credits for education has been rivised
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
AARP (American Association of Retired Persons)
AARP (American Association of Retired Persons)
I have been a member of AARP on and off for quite some years, main reason has been for the travel discounts though not that generous a discount usually around ten percent.
I was reading their AARP Bulletin recently and was amazed as to how many advertisements I found. I remember years ago reading an article pointing out that most of the benefits and partners sponsored by organization weren’t that great of a deal.
After reading some of the current ads, my opinion hasn’t changed. It would seem that AARP, the organization isn’t really about saving its member money but promoting products to their membership that probably could be found cheaper if a person were to shop around.
To be fair, I did years back; find their online prescription service to be cheaper then my local pharmacy though I haven’t priced it recently.
I would appreciate your comments on the subject: is belonging to AARP that beneficial? Are their publications short on content, but a lot of advertisements?
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
Identity Theft
Identity Theft
If identity theft is a concern and it should be, freezing your credit report at all three of the major credit agencies is a good start.
In addition there are actions that you should take at home such as shredding credit card statements, bank and brokerage statements.
When your credit card expires and you have a replacement, cut the card into three parts and place in the garbage each pickup until the last of the third piece of the card has been disposed of. Depending on which shredder you purchase some shredders also will handle plastic.
Don’t forget to shred workplace documents such as payroll stubs, 1099’s and other tax related forms. You should also shred old tax returns that are older than five years. The IRS can only audit you for the three prior years if there is no fraud involved.
Many financial institutions now will send statements electronically if you opt in or allow you to access your account online.
Consider opening an account with PayPal tying the account to your checking or credit card accounts. When you shop online it will give you another layer of safety, as the merchant never see your financial data such as account numbers.
Do not use public wireless locations to make purchases or conduct financial matters such as McDonald’s, Barnes & Nobles, etc.; as your data could be stolen.
Never use an email you received to access any of your accounts, go directly to your browser and type in the website address.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner
Recent Changes to Purchasing US Savings Bonds
Recent Changes to Purchasing US Savings Bonds
Effective January 01, 2012 paper US Savings Bonds are no longer available for purchase from your financial institutions such as banks or from your employer. The only exception for a paper bond is via tax return refunds, but only up to $5,000.
The Treasury now wants us to purchase the bonds electronically via TreasuryDirect.com; you may purchase an electronic version of EE or I bonds up to $10,000 per calendar year. The limits are per social security number so married couples could each purchase $10,000 or a total family purchase of $20,000 per year.
You can still purchase via payroll deductions, however only the electronic bond as the paper bond is no longer available.
To setup an electronic account you will need to provide identification information which includes driver license if you have one and create an online account where you can not only purchase for yourself, but also children (gift to minor) and others. Once your account has been setup you then can create linked accounts of others in the case of gifts.
The sign up process is straight forward, however once you have setup your account I found the navigation on the TreasuryDirect very unfriendly. It has a bit of a learning curve before you will feel comfortable buying bonds.
You may also purchase other Treasury products such as T-Bills, notes, TIPS and C-I accounts via TreasuryDirect.
Daniel Iuculano, AAMS CMFC
Financial & Wealth Planner