I often get a lot of tax-related questions in my business. Here are the answers to some of the most common queries:
• For how many years do I need to keep tax returns? You should keep your tax returns from 2008, 2007, 2006 and 2005. The IRS will usually only go back three years, and New York State will go back four years. If you practice fraud, they can go back seven years. Fraud entails understating your income by more than 25 percent, or taking fake deductions of more than 25 percent. The State of New York does not have any limitations. After eight years, the IRS destroys their microfilm records. You cannot get a copy of your tax return after eight years.
• What records should I keep? If you file a long form claiming medical expenses, taxes paid, contributions, etc., save all of these checks and records. If you prepared a short form tax filing, you do not need to keep anything except your income records. Shred your rent receipts, utility bills and bank statements. Make room at home. You should save records on any stocks that you purchased, but have not yet sold. When you sell a stock, you must provide the date of purchase and the stock’s cost, and the date of the sale and selling price. Not reporting the sale of stock on your tax return is one of the biggest problems taxpayers face. Some people say I lost money on the trade, so why do I have to report the loss? All sales of securities are directly reported to the IRS. Your tax return must match their records.
Also, keep records on all traditional, non-deductible and Roth retirement accounts that you opened and funded during your working years. When you reach age 70-and-a-half, you are required to make minimum annual distributions from your retirement accounts. Please remember “minimum” does not mean you have to take it all out at one time.
• Long-term care insurance premiums: These are deductible as a medical expense on your federal tax return, and New York State gives you a 70 percent tax credit on their return.
• Recovery rebate credit: If you did not file a 2007 tax return, you may still qualify for the maximum economic stimulus payment in 2008. Make sure you file.
• Other deductions: If you pay little or no New York State tax annually, and you complete a long form federal tax filing, you could be entitled to claim a sales tax deduction or schedule A for sales taxes paid.
• Surviving spouse’s home sale exclusion: A surviving spouse who sells a house or apartment that they live in as their home after 2007 can claim the $500,000 exclusion on a sale within two years after the death of the spouse. This is provided that the $500,000 exclusion was theirs legally before the first spouse died.
Gary E. Reska offers individual and business taxes, and complete bookkeeping and business forms service. Contact him at 212-249-2525 or email@example.com.
Trackback from your site.