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Keeping Good Tax Records

If you were ever subject to an IRS audit, would you be ready? Keeping thorough records that are well organized can help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.

This doesn’t mean you need to keep every single document that records or demonstrates a reason for a deduction or that you need to keep your records till the end of time. It’s a good idea to keep your ordinary supporting documents for three years. 

There are certain transactions for which you are wise to keep documentation longer, e.g. records relating to a home purchase or sale, stock transactions, retirement account records, and business or rental real estate.

Employers are required to keep employment tax records from the later of four years from the date of payroll tax returns or the payment of employment taxes on payroll.  As errors, and thereby audits, are much more common for this tax item, good records can be especially important here.

If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.

Some IRS publications are helpful in telling you what it is wise to keep:

Publication 552, Recordkeeping for Individuals, provides more detailed information on individual record keeping requirements.

Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses.

For up-to-date tax information visit TurboTax Online. Their support section is loaded with informative and accurate articles and a Free Tax Calculator you can use to help lower your taxes.

Advance Earned Income Tax Credit

If you’re a business owner, would you like to help your employees increase their take–home pay at no cost to you? If you’re an employee, wouldn’t that be a nice deal for you as well?   The Advance EIC Programs allows part of the earned income credit to be received with regular pay rather than when taxes are filed in the following year.

The EIC (or EITC) is a refundable credit for qualified employees. The credit reduces the amount of tax owed, if any, and may result in a refund to a taxpayer even if no tax is due. Workers may take the EIC whether they file their taxes on Form 1040 or 1040 EZ. 

Eligible employees can receive part of their earned income credit for current year in their paychecks throughout the year, instead of waiting until they file their tax returns. To be eligible for Advance EIC payment, an employee must have a qualifying child, fall within certain income limits, and meet certain other age, residency and work requirements.

The employee must give his/her employer a completed and signed Form W-5.  The calculation of the amount of the advance credit is found using Publication 15, Circular E, the Employer’s Tax Guide. 

The advance payment is added to the employee's net pay for the pay period. Since the EIC isn't wages, you don't withhold any income, social security, or Medicare taxes from the payment.

Generally, you make the advance payments from withheld income tax and employee and employer social security and Medicare taxes. However, the payment doesn't change the amount of employment taxes you would usually withhold from the employee's pay. The employer does get to subtract this amount from total employment taxes due.

Please visit TurboTax online and try one of their free online tax calculators to help you determine the amount you may receive for child tax credit.

IRS Standard Business Mileage Tax Deduction Rate

There has been a recent increase in the standard mileage tax deduction rate. It has increased from the previous 48.5 cents per mile to 50.5 cents per mile. This new increase took effect on January 1st, 2008.

The new standard deduction will include cars, vans, pickups, and or panel trucks.  The IRS allows you to deduct your auto expenses for visits to customers and clients as well as any business appointment that is away from your usual workplace. If you are a business owner then you may also deduct expenses when traveling to pick up supplies.

Standard Vs. Actual

You can decide to either take the standard deduction mileage rate or you can deduct the actual vehicle expenses. This would include the following items:

• Gas

• Oil Changes

• Tires

• Repairs & Maintenance

• Insurance & Registration

If you decide to go with the actual expense deduction you may not change at any point in the year to the standard but you may change from standard to actual. The most important thing to consider in making the decision to use either actual or standard would be to take a look at the number of miles you drive each year.

If you travel a large amount of miles then the standard deduction is probably a better choice for you. The actual deduction can yield a larger deduction but is also more time consuming. Every business trip must be logged with mileage, date, and purpose.

To help you maximize your mileage tax deductions please visit TurboTax Online. TurboTax Online offers detailed instructions on claiming all of your deductions.

Vehicle Income Tax Deductions

Using your personal vehicle for business use requires vigilant documentation which begins with the New Year. Keeping your documentation correct will save you a lot of money and aggravation when dealing with the IRS.

This article is a call to everyone who uses their personal vehicle for business, to maintain your tax deduction documentation correctly by writing down your vehicle odometer reading on January 1st. This entry alone will be contributory in figuring your total vehicle mileage for the year. Remember that your total vehicle mileage is a required element of proper deduction evidence for submission to the IRS.

The necessity of the total annual vehicle miles is not apparent if you elect the Standard Mileage Rate for your vehicle deduction. The computation to determine your vehicle deduction using this method does not need the total miles accumulated for the year.

Your deduction is a simple multiplication of your business / charity / medical mileage by the IRS rate. However, if you use form 2106, Section-A requires the total annual vehicle mileage. Similarly, the simplified form 2106-EZ implies this required information in Part II. On the simplified form you are required to populate 'businesses, 'commuting', and 'other' miles. The implication here is that if you completely documented your business and commuting miles, the 'other' miles would be your total annual miles minus your business miles, minus your commuting miles.

Conversely, if you elect to use the 'Actual' vehicle deduction method, your total vehicle mileage is a requisite part of your income tax deduction. This method of calculating your vehicle expenses uses the total annual vehicle mileage to prorate the entire cost of operating your vehicle as a ratio of business vehicle miles divided by your total vehicle miles for the year.

For example: if your total mileage for the year was 12,500 and you drove 7,500 of those miles for business purposes, your vehicle deduction prorate factor will be 7,500 / 12,500 or 0.60. This means that 60% of all vehicle costs are tax deductible as a business expense.

Determining which method will yield a higher tax deduction is not a simple exercise. This depends on many variables including the type of vehicle you own, your driving conditions, your driving habits, your insurance premium, etc. The IRS standard rate is typically not the best method for you financially, but it does grant you the benefit of reduced documentation. A study done in 1997 by the Victoria Transport Policy Institute reveals that the cost of operating a vehicle can be as high as $1.25 per mile for urban driving. That $1.25 was in 1997 when gasoline was only around $1 per gallon.

You should never fabricate or estimate any of your vehicle mileage entries. You don't ever want to be in the position of defending your deduction on the allegation of fraud. The IRS has been known to use any vehicle service repair receipts, or possibly state inspection reports (which have the odometer value and date) as a means to invalidate your documentation in an effort to disallow your deduction.

Proper documentation is a requirement for anyone who uses their personal vehicle for business use. You should now, at the very least, go out and purchase a mileage log book from you local office supply store. On the first page you will record your odometer reading for January 1st or you should visit my website and download a free PDF file to use for your vehicle log. You can start off the New Year on the right foot by recording you vehicle odometer now and make a resolution to keep your vehicle mileage log book up to date.

For your FREE mileage logs go to: http://www.pockettaxdeductions.com/reports/FreeLogsDownload.aspx?ca_id=6&pg_id=2 Tired of using hand written vehicle mileage logs? There is a better way. Save time and money using your Windows Mobile or Pocket PC PDA to collect all your vehicle, travel, and entertainment expense deduction documentation quickly and easily. Aggressively maximize your Bottom Line with Pocket Tax Deductions. Go to http://www.pockettaxdeductions.com?ca_id=6&pg_id=2 to learn how you can save. Claim your mileage tax deduction with TurboTax Online! Article Source: http://EzineArticles.com/?expert=Jim_Gentilin

Child Tax Credit Worksheet and Calculator

The child tax credit worksheet will help you determine if you meet the necessary guidelines to receive the child tax credit. The first test will be for the dependent, he or she will have to meet some minimum requirements such as:

• Be a citizen or resident of the United States

• Be a resident of your household for at least half the year

• They will need to have a social security number

There will be a worksheet provided in the instructions for form1040, line 52 or form1040A, line 33. This worksheet will help you calculate your child tax credit amount. The amount will be up to $1,000.00 for each qualifying child. This amount will be subject to your total tax liability amount. The credit cannot exceed the amount you owe.

If the credit is greater than the amount of your liability then you may qualify for the additional child tax credit. You can calculate this amount using form 8812. These tax credits will begin to phase out as your income exceeds certain levels. The credit will begin being reduced by $50.00 for every 1,000.00 that your income exceeds the threshold amounts.

You can get a lot of free information and help in preparing your taxes at an online tax preparing service such as TurboTax online. Using a tax preparing service will provide all of the worksheets necessary to get the most deductions and credits possible. They also will provide free tax calculators to help you find out what deductions and credit you can take.

Let TurboTax Online walk you step-by-step through this process. Please visit TurboTax Online to access the forms and to use their free tax calculator.