What information is needed to prepare my income taxes?
We get many requests from clients as to what is needed for us to prepare their income tax returns aside from their business income and expenses. They are referring basically to items that are usually received in the mail which we will list below. Most tax preparers have an income tax organizer which lists everything that is needed for the preparation of an income tax return. The items that hold most people up are the end of the year statements. Listed below are the items that should have been mailed no later than January 31. If you have not received them and have allowed for adequate mailing time, you should contact your employers or financial institutions to find out where they are or to request duplicates.
- 1099’s from all of your employers, i.e. people that you have hauled for, brokers, motor carriers and your independent businesses.
- 1099’s or end of year statements from banks for interest and dividend income, brokers for stock information, mutual funds, 401K and IRA distributions, and mortgage interest statements.
- Schedule K1 if you are involved in any partnerships.
- W-2P or 1099R for pension and annuity income.
- 1099’s and year end statements for unemployment compensation, social security income and state tax refund.
- Contracts for the purchase and sale of equipment.
- Escrow statements for the purchase and sale of property.
- Confirmations from charities for donations in excess of $250.
In general, you must have receipts and back up information for everything that appears on your tax returns.
No, you do not have a loss of $25,000. When you sell an asset such as a truck, you must compute its adjusted basis. You then compare its adjusted basis to the sale price and that will determine your gain or loss. Let’s say you bought the truck for $60,000 but over a few years you took $40,000 in depreciation. You then take $60,000 minus $40,000 taken in depreciation which leaves $20,000 as your adjusted basis. Now, assume you sold the truck for $30,000. You take the sale price of $30,000 and subtract the $20,000 adjusted basis and that leaves a $10,000 gain. If you traded the truck in on a new one instead of selling it, you must reduce the basis of the truck by the gain. The gain on a trade-in is not reported on your tax return. There are advantages and disadvantages relative to sales versus trade-ins.
What kind of property can be depreciated for tax purposes?
The kinds of property that can be depreciated include machinery, equipment, buildings, vehicles, computers, fax machine, copy machine and furniture used in a trade or business or to produce income.
May I deduct my home improvements and repairs to my home?
No. Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of improvements to the basis of your property. Examples of improvements include putting a recreation room in your unfinished basement, adding another bathroom, or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway. Repairs maintain your home in good condition. They do not add to its value or prolong its life, and you do not add their cost to the basis of your property. Some examples of repairs include repainting your house inside or out, and fixing gutters or floors.
Do I pay taxes when I sell my equipment?
Yes. If you acquire an asset for $50,000 and you have depreciated $40,000 worth, your tax basis in that property is $10,000 – the $50,000 cost less $40,000 depreciation taken. If you were to sell that equipment for $25,000, you would have a gain of $15,000. (Example – cost of equipment to be sold was $50,000 less depreciation taken of $40,000 leaves a tax basis of $10,000. The selling price of $25,000 less the tax basis of $10,000 leaves a $15,000 gain.) The gain is ordinary income, not capital gain. If you traded in the old equipment instead of selling it, there would be no gain to report on your tax return, but the depreciation available on your new equipment would be $15,000 less.
How can I justify my cash payments to my lumpers?
You need to maintain a book such as a daytimer, entering name, address and social security number of the person you have made the payments to. If that particular person earns $600 or more from you, then you have to issue a 1099 at the end of the year. If you are working for a household mover who has agencies for lumpers nationwide, then you should be able to get receipts when you pay those people.
I am a company driver. What is deductible when I’m on the road?
While self-employed individuals can generally deduct any expenses incurred to earn their income, company drivers are limited to non-reimbursed expenses required by their employer. You are entitled to per diem for overnights and motel expenses. A good rule to follow for deductions would be any expenses incurred that are necessary or required in the performance of your job and/or operation of the truck but are not reimbursed by your company, such as uniforms, gloves, logbooks, maps, cell phone, CB, tools, Windex, paper towels, showers, etc. Remember, as a company driver, these deductions are only available if you itemize and are not available if you take the standard deduction.
Can I take a home office deduction?
To qualify for the home office deduction, the home office must be your principle place of business. You must use the home office regularly and exclusively for administration and management of your business. And, you may not have any other fixed location where you regularly conduct administration and management activities of the business.
Can I deduct Deadhead miles?
No you cannot. There is a big misconception concerning deadhead miles. There are many truckers who think that the income lost as a result of deadhead miles is a deductible item. That is not the case. Only the cost to operate the truck, i.e. fuel, insurance, repairs, and maintenance covering those deadhead miles are deductible.
What is the per diem rate?
- The per diem rate for meals on October 1, 2015 changed to $63 per day
- The per diem rate for meals in 2014 is 80% of $59 per day
- The per diem rate for meals in 2011 is 80% of $59 per day.
- The per diem rate for meals in 2010 was 80% of $59 per day.
- The per diem rate for meals in 2009 was 80% of $52 per day for the period January 1, 2009 through September 30, 2009, and 80% of $59 per day October 1, 2009 through December 31, 2009.
- The per diem rate for meals in 2008 was 80% of $52 per day.
- The per diem rate for meals in 2007 was 75% of $52 per day.
- The per diem rate for meals in 2006 was 75% of $52 per day.
- The per diem rate for meals in 2005 was 70% of $41 per day.
- The per diem rate for meals in 2004 was 70% of $41 per day.
If you cannot file by April 15th, you may get an automatic 4 month extension, Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return to eliminate a late filing penalty. However, this is not an extension of time for paying any tax due. There will still be penalties and interest for late payments. You must pay any tax due at the time the extension is filed.
I have already filed my return and now I have received another Form W-2. What can I do?
If you find that you did not report some income, you claimed deductions or credits you should not have claimed, you failed to claim some deductions or credits you are entitled to, or you should have used a different filing status, you should file an amended return. The form you use to correct the Form 1040, Form 1040A, or Form 1040EZ that you have already filed is Form 1040X, Amended U.S. Individual Income Tax Return.
Should I mail my tax return by regular mail?
The IRS will accept as proof of timely mailing a certified or registered mail receipt from the United States Postal Service or a receipt from an IRS-approved express delivery service. It is always advisable to send tax returns certified mail, return receipt requested. According to the IRS, this is the only proof you can count on to prove you mailed the return on time.
I just completed my tax return and found that I owe the IRS money. What should I do?
You should file the return even if you cannot pay the entire amount of taxes that you owe. By paying something, you can reduce the amount of interest and penalties that you will owe.
Can I ask to make installment payments on the amount that I owe?
Yes. But before requesting an installment agreement, you should consider less costly alternatives such as a bank loan.
I am unable to pay delinquent taxes. Will the IRS accept an offer in compromise?
The IRS accepts an offer in compromise to settle unpaid accounts for less than the amount owed when doubt exists that the liability can be collected in full and your offer reasonably reflects the potential collection amount.
I still haven’t received my tax refund. What should I do?
If you haven’t received your tax refund and it has been over six weeks, you can call the IRS at 800-829-4477. Make sure you have a copy of your return on hand when you call because you will need your social security number, filing status, and exact dollar amount of the refund. If the IRS never received the return, file another copy. There will be no penalty since you are getting money back. If the refund is lost, write the IRS Service Center where you filed your return with all the details. If you still need help, contact the Service Center’s Problems Resolution Officer.
Contact a CPA or other tax professional.
What does an IRS agent look for when they visit your home or place of business?
It isn’t a good idea to let a revenue agent visit your home during an audit. An agent who knows what he is doing will hear and see things that could influence additional tax to impose. Expensive cars in your garage or luxury items in your home can trigger an investigation as to how the expenses are dealt with. Casual conversation by others can lead to tax issues otherwise not in question.
I got audited and the IRS wants me to sign a “settlement or closing” agreement. What should I do?
Before signing a settlement with the IRS, be sure you are satisfied with it. You’ll be bound by it even if the IRS gives others in the same situation a better deal. If you handled the audit yourself, you might want a CPA or other tax professional to review it.
How long do I need to keep certain records?
Records such as receipts, canceled checks, and other documents that prove an item of income or a deduction appearing on your return should be kept until the statute of limitations expires for that return. Usually this is Six years from the date the return was due or filed. There is no period of limitations when a return is false or fraudulent or when no return is filed. You should keep some records indefinitely, such as property records, since you may need them to prove the amount of gain or loss if the property is sold. If you are an employer, you must keep all your employment tax records for at least six years after the tax is due or paid, whichever is later.