With the 2014 Tax filing season behind us, whitehouse.gov‘s interactive tool shows you exactly where your tax dollars were spent. It’s no surprise that over 50% of your taxes went to health care and national defense, but I think one of the more interesting numbers is the 9% we pay just to cover net interest from our nations deficit. Curious to know where your money went? Check out the tax calculator below!
The IRS recently revised legislation that previously kept the statute of limitations open for 6 years for any understatement of income greater than 25% of gross income. The new law now provides that an in addition to understatement of income, overstatement of deductions that results in the same 25% omission of income leaves you open to IRS audit for 6 years!
With the 2014 tax season behind us, I’ve had several clients ask how long they actually need to keep some of their tax records. I’ve compiled a list of the more common documents, specifically related to individuals, and how long you actually need to hoard these pieces of paper for.
Personal Documents to keep forever:
- Audit reports
- Legal documents
- Property records, improvement receipts (or 7 years after property is disposed)
- Investment trade confirmations
- Retirement and Pension records until all distributions are made
Personal Documents to keep seven years:
- Supporting documents for tax returns (W-2’s, charitable contribution receipts, etc.)
- Income tax returns
- Income tax payments
Personal Documents to keep three years:
- Utility records
- Expired insurance policies
- Medical bills
Note that these times are from the date that your original tax return was filed. If you have a scanner, the IRS does accept digital copies as long as they are legible. I recommend keeping a local backup as well as a cloud backups on Google Drive, Dropbox, Box, or any other secure cloud based storage.
If you have any questions about document retention, please contact Paul Glantz, CPA at email@example.com
As the year winds down, there is nothing more important than discussing year-end tax strategy. Building communication between yourself, your CPA, and your investment advisor will guarantee you are a winner come April 15. Far too often, poor decision making and bad planning will lead to a big bill from the IRS. I’ve compiled a list of five powerful tips you can use now to help reduce your tax bill next year.
- If you had any big losers in the market this year, consider “realizing” these losses, and preserving your investment position by purchasing back that same security 31 days later.
- Consider using a credit card to pay deductible expenses before the end of the year. The IRS operates on the “year of swipe” principle. So while you will not receive the bill for these expenses until 2016, you can benefit from the deduction in 2015.
- Apply strategy to your itemized deductions. In some states, and cities (like Austin, Texas), you can make your property tax payment between October and January. If planned correctly, you can double your real estate tax deduction every other year, while still taking advantage of the standard deduction for in-between years.
- Defer income and accelerate your deductions. Ask your boss to hold on to that year-end bonus until January or have your employer bump up your last few 401k contributions. Other strategies for accelerating your deductions include increasing the amount you set aside for next year’s FSA or, if eligible, make a full years worth of HSA contributions before December 1, 2015.
- If you made a Traditional to Roth IRA conversion earlier in the year, and the value of the assets has since declined, you could wind up paying a higher tax than necessary. You can combat this by backing out of the transaction, and re-characterizing the conversion. Later, you can reconvert to a Roth.
Stay tuned for more tax planning tips as we wait for information on any “extender legislation” for temporary tax rules set to expire Dec 31.
For more information on year end planning, contact Paul Glantz, CPA at firstname.lastname@example.org