So here is this time honored question – how long do I have to keep all my old income tax receipts? What’s the answer? It may be a little more complicated than that. The IRS statute of limitations (the time limit the IRS has to audit your taxes for any particular year) is three years from the date of filing. Your state may have different rules (for instance, California’s statute of limitations is four years from the date of filing.) Taking your state into account, and especially if you have filed an extension in the past (which can add up to six months onto the statute of limitations), a general rule of thumb is probably five years; some tax professionals recommend seven years to be safe. But there is more information you may need to keep longer than the five-to-seven year time frame. If you own a house (residence, rental or investment property), you need to keep documentation of all the improvements you made to the property, since you may have to show the auditors your cost basis so an accurate gain or loss can be calculated (even if you have the $500,000 exclusion on a principle residence, any gain above [...]
Tax Musings of a Burbank CPA: New Stealth Taxes You May Already Be Paying
If you have more than $200,000 in income this year, BEWARE! This is the year we have started paying for Obamacare in the following ways: 1. A New .9% Medicare Tax Withheld From Payroll or Paid as Self Employment Tax On Your Tax Return. 2. A New 3.8% Medicare Tax On Investment Income Paid On Your Tax Return. The first medicare tax is actually withheld from your wages or is paid as self employment tax. It is based on wages and self employed income ($200,000 for filing single, head of household and qualifying widows and widowers, $250,000 for filing married joint and $125,000 for filing married separately), so you really have no idea how much you owe until you file your taxes. If married, you get to combine your wages and self employed income with your spouse, then calculate your medicare tax on form 8959 on your personal tax return and reduce it by the taxes withheld to see what you owe. Even more fun, if you have wages, the withholding starts when you have $200,000 in wages by your employer, so if you and your spouse each earn $150,000, you will owe an additional $450.00 in medicare tax ($300,000 wages less $250,000 = $50,000 times .9% = [...]
Tax Musings of a Burbank CPA: Do You Really Like Loaning the Government Money?
So, you have filed your income tax return with the IRS and your state, and are now waiting for the refund the government(s) owe you. You are thinking of all the things you can do with that money when you get it. Here are some things to think about as you wait: 1. These refunds are in effect interest free loans you have made the government(s) over the year through excess withholding. They are just paying you back money you earned over the previous year that won’t even earn interest unless you file an extension and wait even longer for your money. This is even worse than that bet that your buddy owes you because at least you know where to find him if he doesn’t pay you right away. With our government you call on the phone and wait an hour for them to tell you that the refund is being processed or go on their website and find out there is a problem and you have to call anyway! 2. You could be earning some income on this refund if you take it with each paycheck instead of putting it into additional withholding. Even with the low interest [...]