Thursday, April 12, 2012

Keeping tax related documents

Q.  How long is it necessary to keep tax records? Some people have said 7 years, others 4, and some 3. I'm not certain how long to keep my records. Can you solve this mystery for me?

A.  Generally, I advise my clients to keep records for 4 years, even though the federal statute of limitations runs out on the later of 3 years after the filing date or the due date of the return. This is because of the state statute of limitations, which may differ from the federal. I believe the 7 years pertains to payroll records, if you have employees, but the IRS says generally 3 years. Here is a link to an IRS Tax Tip which will have links to several of their other publications. I try to impress my clients with the need to keep records of assets which may be taxable or reportable when sold or otherwise disposed. This is especially true for all real estate transactions, stocks & other securities purchased and not yet disposed, and assets used in business.

Wednesday, April 11, 2012

What to do with a 1099-S

Q.  I just received a 1099-S form and I don't have any idea what to do with it. My husband and I filed a 1040A form in late January. We sold our house at a loss, have moved, and have since both been struggling to find work. We were told the loss from the sale of a personal residence was non-deductible, so did not include it on our tax return. Will we get into trouble?

A.  Trouble, no, aggravation, possibly. When the IRS computers process that 1099-S, they will expect to find it on your return. You need to report the sale to show the loss, even though it cannot be deducted. There are many instances where an item is reportable, but not necessarily taxable. This is one of them. Wait until after April 17th, then you can  download an amended 1040X along with Schedule D, and properly report the loss. This should save you the aggravation of receiving a notice from the IRS in a year or two with a letter asking for payment. All the IRS computers know is that you received $ XXX.XX. They have no idea what your basis in the residence is. This is why you need to report it.

Monday, April 9, 2012

Business Usage of an RV

Q.  Are there any requirements for writing off business use of an RV if you are full timing and working out of the RV?

A. I receive many versions of this question, and as I state on the left side of this web page, there are no established guidelines. We need Warren Buffet or Bill Gates to sell their houses and go to work full time in an RV, then maybe, we can get some guidelines!  Kidding aside, it takes much time and paperwork to establish business usage, unlike a car where you only need to keep track of business mileage. It is my feeling you must also establish the hours used for business on a daily basis. Remember, I am directing these comments to those of you who are self-employed only! Working for someone else is an entirely different matter.

Because each case is different, I suggest you contact me after April 17th with specific details. Then I may be able to give you some guidance as to what my other clients are doing!