News / ‘Tax Planning’ Category

Tasha Helms

There’s still time to reduce your AGI for 2011

October 16, 2011 Posted by Tasha Helms
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Many tax breaks, like tax credits, deductions and other tax benefits, are reduced or even eliminated if your adjusted gross income (AGI), or modified AGI exceed certain thresholds. The year-end is approaching quickly and those of you who otherwise qualify for these tax breaks should consider modifying or reducing your 2011 AGI. Here are some key tax breaks that may be limited by AGI thresholds.

  • Up to $4,000 deduction for qualified higher education expenses paid.
  • Nondeductible Roth IRA contributions.
  • Deductible contributions to traditional IRAs by those who are active participants in an employer-sponsored retirement plan.
  • Deductible contributions to traditional IRAs if you are married and not an active plan participant but your spouse is.
  • $1,ooo child tax credit for children under age 17.
  • American Opportunity Credit (formerly the Hope Credit) and the Lifetime Learning Credit for higher education expenses at accredited post-secondary education institutions.
  • Up to a $2,500 deduction for interest paid on qualified education loans.
  • Contributions (up to $2,500 annually) to a tax-exempt Coverdell Education Savings Account (CESA) for an individual under age 18.
  • Tax-free break on U.S. savings bonds redeemed to pay qualified higher education expenses.
  • Credit for qualified adoption expenses.
  • A limited offset of non-passive income against passive losses for an active participation rental real estate activity.

Other key items affected by AGI levels are miscellaneous itemized deductions, Social Security benefit taxation, medical expense deduction and non-business casualty loss deduction.

Contact your tax professional regarding the details of these tax breaks and how reducing your AGI levels may benefit you.

Stay tuned for some techniques that may assist in keeping your AGI levels below relevant phase-out thresholds and potentially reduce your income tax burden.

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Tasha Helms

Substantiating Charitable Contributions

July 25, 2011 Posted by Tasha Helms
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As we approach year-end, many of us may need to catch up on our charitable contributions for a number of reasons in addition to a tax break. So, let’s briefly review the IRS rules on deducting charitable contributions.

A donor will not be allowed any deduction for a contribution by cash or check, or any other monetary gift, regardless of the amount unless the donor retains either:

  1. a bank record that supports the donation or
  2. a written receipt or communication from the charity showing the name of the organization, date, and amount of the contribution.

 

Property donations valued at less than $250 must be substantiated by a written receipt or letter from the charitable organization showing the organization’s name, the date and place of the contribution, and a detailed description of the property. Donors must also obtain a written acknowledgment from the charity if the value of the contribution (in cash or other property) is $250 or more – a canceled check or other reliable records are not sufficient proof.

Please contact us if you have questions about substantiating charitable contributions.
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Tasha Helms

Retaining Tax Information and Records

July 25, 2011 Posted by Tasha Helms
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Retaining and storing your income tax information and records is an important final step of your tax filing responsibility. This article contains information on the rules for keeping your tax records.

When determining how long to keep most of your income tax information and records, look at (a) the time frame over which the IRS can audit a return and assess a tax deficiency or (b) the time frame during which you can file an amended return. For most taxpayers, this period is three years from the original due date of the return, or the date the return is filed, if later. For example, if you filed your 2008 Form 1040 on or before April 15, 2009, the IRS has until April 15, 2012, to audit the return and assess a deficiency. However, if a return includes a substantial understatement of income, which is defined as omitting income exceeding 25% of the gross amount reported on the return, the statute of limitations period is extended to six years.

A good rule of thumb for keeping tax records is to add a year to the IRS statute of limitations period. Using this approach, you should keep your income tax records for a minimum of four years, but it may be more prudent to retain them for seven years, which is what the IRS informally recommends. State tax rules must also be considered, but holding records long enough for IRS purposes will normally suffice for state tax purposes, assuming the federal and state returns were filed at the same time.

Certain tax records, however, should be kept much longer than described above and some, indefinitely. Records substantiating the cost basis of property that could eventually be sold, such as investment property and business fixed assets, should be retained based on the record retention period for the year in which the property is sold. Tax returns, IRS and state audit reports, business ledgers, and financial statements are examples of the types of records you normally should retain indefinitely.

Keep in mind that there may be nontax reasons to keep certain tax records beyond the time needed for tax purposes. This might include documents such as insurance policies, leases, real estate closing statements, employment records, and other legal documents. Your attorney can provide additional guidance.

We hope this brief overview helps you under-stand the income tax record retention rules. If you have any questions regarding your specific situation or if you would like to discuss these rules in more detail, please give us a call.


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