So you have been listening to me and have actually been doing a good job keeping the five to seven years of tax receipts I have recommended. Congratulations! Now you have a different problem – the storage problem! Those receipts take up a lot of space. Short of renting public storage, you just don’t have room for them. Now what? Well, do you have a computer? Do you have a printer that can scan pdfs or software that can create it? If not, it is time to think about getting them! Taking all these documents and storing them on the computer in pdf format is the best way to save all the data without the storage problems. If you need to prove a deduction to the IRS or the state, you just have to find the right document, print it up and give it to the authorities. Just remember a couple of points; setting up a file system on the computer and making backups so if the computer crashes you can recover the data. 1. If you have a PC and use Windows, it is relatively easy to set up a folder system to keep your various deduction and income [...]
Tax Musings of a Burbank CPA: So How Long Do I Have to Keep This Stuff Anyway?
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% = [...]