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FAQs.

In this section, we have answered some of the most common and important questions that arise around the subjects of accounting and taxes.

FAQs2022-04-27T16:00:17-07:00
What kind of recordkeeping system do I need?2022-04-27T17:16:06-07:00

Unless you own or operate your own business, partnership, or S corporation, recordkeeping does not have to be fancy.

Your recordkeeping system can be as casual as storing receipts in a box until the end of the year, then transferring the records, along with a copy of the tax return you file, to an envelope or file folder for longer storage.

To make it easy on yourself, you might want to separate your records and receipts into categories, and file them in labeled envelopes or folders. It’s also helpful to keep each year’s records separate and clearly labeled.

If you have your own business, or if you’re a partner in a partnership or an S corporation shareholder, you might find it valuable to hire a bookkeeper or accountant.

Do you contribute to charity?

If you donate to a charity, you must have receipts to prove your donation.

Starting in 2007, contributions in cash or by check aren’t deductible at all unless substantiated by one of the following:

  1. A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include: a canceled check, a bank or credit union statement or a credit card statement.
  2. A receipt (or letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
  3. Payroll deduction records. The payroll records must include a pay stub, Form W-2 or other document furnished by the employer that shows the date and the amount of the contribution, and a pledge card or other document prepared by or for the qualified organization that shows the name of the organization.

Besides deducting your cash and non-cash charitable donations, you can also deduct your mileage to and from charity work. If you deduct mileage for your charitable efforts, keep detailed records of how you figured your deduction.

Are you employed by someone else?

If you work for someone else and spend your own money on company business, keep good records of your business expense receipts. You will need these records to either get a reimbursement from your employer or to prove business-related deductions that you take on your taxes.

Do you have income from tips?

If you make tips from your job, the hand of the IRS reaches here too, and if you are ever audited, the IRS will be interested in records of how much you made in tips.

Do you own property?

If you own property, be particularly careful to keep receipts or some other proof of all your expenses, especially for repairs and improvements.

Do you hire domestic workers?

It’s important to keep accurate information about who works for you, including nannies and housekeepers, when and where they worked for you, and how much you paid them for the work.

Do you have a business?

If you have a business, you must keep very careful records of all your business expenses, including vehicle mileage, entertainment expenses, and travel expenses.

If you have a business, just because you have cash in your pocket doesn’t mean you’re in the black on the books. Keeping up-to-date records of all transactions and costs will not only help you tax-wise, but it will also tell you if your business is actually profitable.

Do you travel for your business?

If you travel for business, keep good receipts and logs of all your travel expenses, including those for meals and entertainment. You will need this information whether you work for yourself or for someone else.

How long should I keep these records?2022-04-27T17:14:05-07:00

Keep the records of your current year’s income and expenses for as long as you may be called upon to prove the income or deduction if you’re audited.

For federal tax purposes, this is generally three years from the date you file your return (or the date it’s due if that’s later), or two years from the date you actually pay the tax that’s due if the date you pay the tax is later than the due date. IRS requirements for record-keeping are as follows:

  • You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
  • You do not report the income that you should report, and it is more than 25 percent of the gross income shown on your return; keep records for 6 years.
  • You file a fraudulent return; keep records indefinitely.
  • You do not file a return; keep records indefinitely.
  • You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
  • You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
  • Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
What types of records should I keep?2022-04-27T17:12:35-07:00

Keep records of all your current year income and deductible expenses. These are the records that an auditor will ask for if the IRS selects you for an audit.

Here’s a list of the kinds of tax records and receipts to keep that relate to your current year’s income and deductions:

  • Income (wages, interest/dividends, etc.)
  • Exemptions (cost of support)
  • Medical expenses
  • Taxes
  • Interest
  • Charitable contributions
  • Child care
  • Business expenses
  • Professional and union dues
  • Uniforms and job supplies
  • Education, if it is deductible for income taxes
  • Automobile, if you use your automobile for deductible activities, such as business or charity
  • Travel, if you travel for business and are able to deduct the costs on your tax return

While you’re storing your current year’s income and expense records, be sure to keep your bank account and loan records too, even though you don’t report them on your tax return. If the IRS believes you’ve underreported your taxable income because your lifestyle appears to be more comfortable than your taxable income would allow, having these loans and bank records may be just the thing to save you.

What documents do I need to keep in order to do my taxes?2022-04-27T17:11:26-07:00

Keep detailed records of your income, expenses, and other information you report on your tax return. A good set of records can help you save money when you do your taxes and will be your trusty ally in case you are audited.

There are several types of records that you should keep. Most experts believe it’s wise to keep most types of records for at least seven years, and some you should keep indefinitely.

Why should I defer income to a later year?2022-04-27T17:09:44-07:00

Most individuals are in a higher tax bracket in their working years than during retirement. Deferring income until retirement may result in paying taxes on that income at a lower rate. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.

What can I do to defer income?2022-04-27T16:55:47-07:00

If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self-employed, defer sending invoices or bills to clients or customers until after the new year begins. You can also defer some of the tax here, subject to estimated tax requirements.

You can achieve the same effect of short-term income deferral by accelerating deductions, such as paying a state estimated tax installment in December instead of the following January due date.

What tax-deferred investments are possible if I’m self-employed?2022-04-27T16:53:49-07:00

Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting business. Several types of plans are available: the Keogh plan, the SEP, and the Simple IRA Plan.

I have a large capital gain this year. What should I do?2022-04-27T16:53:02-07:00

If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital gains losses are deductible up to the amount of your capital gains plus $3,00 ($1,500 for married filing separately). If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

What’s the best way to give to charity?2022-04-27T16:51:05-07:00

Suppose you’re planning to make a charitable gift. In that case, it generally makes more sense to give appreciated long-term capital assets to the charity instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the total fair market value of the property.

Why should I participate in my Employer’s Cafeteria Plan or FSA?2022-04-27T16:33:06-07:00

In 2021 (as in 2020), medical and dental expenses are deductible to the extent they exceed 7.5 percent of your adjusted gross income or AGI. If your employer offers a flexible spending account (FSA), Health Savings Account, or Cafeteria Plan, these plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars.

Can I ever save tax by filing a separate return instead of jointly with my spouse?2022-04-27T16:22:38-07:00

You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:

  • One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
  • The spouses’ incomes are about equal.

Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.

What special deductions can I get if I’m Self-Employed?2022-04-27T16:21:22-07:00

You may be able to take an immediate section 179 expense deduction of up to $1,050,000 for 2021 ($1,040,000 in 2020), for equipment purchased for use in your business, instead of writing it off over many years. There is a phaseout limit of $2,620,000 in 2021 ($2,590,000 in 2020). Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP, or Simple IRA Plan and deduct your contributions (investments).

Will My Information Be Kept Confidential?2022-04-27T16:03:15-07:00

We maintain a policy of the strictest confidence concerning our clients’ affairs.  You can rest assured that no one will learn about your business or tax status – even relatives, associates, or friends who might have referred you to us.

Does This Firm Provide Year-Round Service?2022-04-27T16:03:52-07:00

We are here for you all year, not just during tax season.  Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call at 562 464-5730.

What Type of Services Are Available?2022-04-27T16:04:04-07:00

We prepare tax returns for individuals, partnerships, corporations, trusts, and non-profit entities with tax-reporting requirements as well as other services.

  • Individual Returns
  • Business Returns
  • Trust Returns
  • Individual and Business Tax Planning Services
  • Business Start-up and Ongoing Consultation
  • Bookkeeping Services
  • Payroll Services
  • QuickBooks Consulting
  • CFO Services

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