Title: Deduct Everything!: Save Money with Hundreds of Legal Tax Breaks, Credits, Write-Offs, and Loopholes
Author: Eva Rosenberg.
Eva Rosenberg, MBA, EA, known as the Internet’s TaxMama®, publishes the popular www.TaxMama.com website, cited by Consumer Reports magazine as a top tax advice site, and a LIFE Magazine Editor’s Pick. In Deduct Everything, Eva shares tips, tools, and strategies for saving money through legal tax breaks, credits, write-offs, and loopholes.
TaxMama’s Tax Truisms
- Philosophy about taxes: Lower taxes, achieved ethically = higher profits and increased joy.
- The Mantra about tax return records: Document, document, document! In other words, get a backup for everything!
Philosophy about tax filing when you think you have no taxable income:
Always file a tax return whether you need to or not. You never know what future trouble you will forestall. If you don’t file, you will find out in about five years—and it will be hell. If you do file, you will never know the trouble you’ve missed.
Adjusted Gross Income
This is a specific amount that you will find at the bottom of page one of your long-form 1040. (The same number is found at the top of page two of the long-form 1040.)
“I am sure I could understand income taxes if I put my mind to them. But if I took the time to do that, the world would be deprived of many of my books.” – Isaac Asimov
You have three choices when it comes to taxes.
You can be a Tax Pushover, coasting along and paying out everything that’s demanded of you without another thought.
You can be a Tax Vigilante, fighting passionately to eliminate or reduce taxes wherever you can.
Tax Aware, doing the fundamental, logical things needed to keep your taxes legally low without becoming obsessed.
Tip #6: You don’t need to keep everything forever . . . but do keep tax returns forever.
People are often shocked when the IRS or state pops up saying a tax return has never been filed for a given year, five or ten years ago. Without a copy of that tax return, it’s nearly impossible to prove that you did file. They don’t take up much space. You can even scan them (preferably as PDF files), as long as you are certain that the copies are clean, readable, and retrievable a decade from now. Do you need all the backup records that went with the tax return? Not necessarily. But keep those for at least six to seven years.
The IRS is generally only permitted to audit for up to three years after you file a tax return. However, if you have underreported gross income, overreported expenses, or have overstated the basis of assets by 25 percent or more, the IRS has the right to audit for up to six years.
“If there are criminal omissions or overstatements, the IRS may audit forever. But that should not apply to you. Add one to two years for state deadlines.”
Tip #9: Keep tax preparation records for at least six years.
That means all the cancelled checks, receipts, and records that were directly used in the preparation of your tax return. This should include copies of all your notes, work papers, and correspondence with your tax professional or tax software company. Keep them with a copy of the tax return, so if you’re ever audited, everything is right there, right at hand.
Tip #30: Tax Professionals
How many kinds of tax professionals are there? These are the main categories of tax preparation and consultation professionals you should choose from. (Numbers in parentheses are the PTIN holders in each category):
Enrolled agents (EA; more than 50,000)—EAs are the nation’s tax specialists, with the highest credential that the IRS issues to tax professionals. They are licensed to work anywhere in the country and overseas, with respect to your IRS and state issues. They must complete an average of 24 hours of tax education every year (30 hours if they are a member of the National Association of Enrolled Agents). They are a perfect choice if you need individual and business tax preparation, tax planning, tax audit representation, or you have tax debts.
Certified public accountants (CPA; more than 213,000)—CPAs are the best-known tax professionals. They are licensed by their state CPA society and/or consumer affairs departments. Their practice tends to be limited to their own state unless another state offers reciprocity. However, the IRS will accept their credentials anywhere in the United States or overseas.
CPAs must also get continuing professional education, but there is no mandatory tax education requirement. Most CPAs prepare all kinds of tax returns. Some are adept at IRS audits, while a few are skilled at tax debt representation. So if you have that kind of problem, ask about their experience first.
Tax attorneys (more than 31,000)—These people are also licensed by their state Bar and/or state consumer affairs agencies. Like CPAs, their practice tends to be limited to their own state, unless another state offers reciprocity. However, the IRS will accept their credentials anywhere in the US or overseas. Like CPAs, attorneys must also get continuing professional education, but there is no mandatory tax education requirement. You generally do not need an attorney to prepare your personal tax return.
Use attorneys for estate and gift planning, business succession planning, and criminal tax issues. You need their help on all contracts and agreements, especially with respect to real estate, business agreements, trusts, wills, and so on.
State-licensed professionals—Of all fifty of the United States, only three have any licensing requirements for tax professionals. They are California, Oregon, and Maryland. Tax preparers in these states must pass a test and take a certain number of hours of continuing education in taxes and ethics each year.
“If you live in one of these states, make sure your tax preparer is either licensed by the state or is an EA, CPA, or attorney. Note: Attorneys and CPAs licensed in other states, but practicing in CA, OR, or MD, may have to register with these states’ tax preparer programs. ”
Annual Filing Season Program Certificate of Completion (AFSP; more than 43,000)
In 2014, the IRS instituted a voluntary program to allow unlicensed tax professionals in 47 states to demonstrate a higher level of training and expertise. These people have all the same rights as the state-licensed preparers when it comes to dealing with the IRS. They may represent you at IRS audits on the tax returns they prepared. They cannot speak for you before the IRS collections or appeals divisions.
Unlicensed tax professionals who have PTINs (more than 375,000)
These people are permitted to prepare your tax return and to file your tax return electronically. Period. Some are highly experienced and do get a great deal of education and training throughout the year. Many are not, so beware.
Read your tax return before you sign it. By law, all tax preparers must give you a copy of your tax return before you sign the Form 8879 or Form 8453 to file electronically. It doesn’t have to be on paper; an electronic copy is OK. But do take the time to read and review it before you sign the electronic filing forms or before mailing in your paper tax return. If the preparer made an error, it’s your problem and your responsibility. So read the whole return and ask questions if you don’t understand something.
One of the most common sources of tax breaks comes from the use of vehicles. There are four ways to take advantage of vehicle-related deductions:
1. Charitable mileage
2. Medical mileage
3. Moving mileage
4. Business or job-related mileage
Tip #98: Charitable mileage.
This comes in at 14 cents per mile. The mileage rate is set by Congress, so it has not changed since 1998. (In 1997 it was 12 cents per mile.) Keep track of all charity-related driving. That includes going to meetings, volunteer work, driving your charitable charges to doctors’ offices, meetings, events, campgrounds, and so on.
Tip #99: Charitable parking.
Be sure to track all parking costs. If you don’t get a receipt (due to meters or other mechanical payments), write a note with the date, time, and amount of the parking fee and the charitable purpose.
Business, moving, and medical mileage rates change annually. For 2015, the rates were:
• business—57.5 cents per mile
• moving and medical—23 cents per mile
For 2016, the rates are:
• business—54 cents per mile
• moving and medical—19 cents per mile
Donating expensive things. When you have something very special to donate, like a work of art, the rights to a piece of music, especially something worth $5,000 or more, you need to use a special tax form, Form 8283 (https://www.irs.gov/pub/irs-pdf/f8283.pdf). You must also get a formal, written appraisal, and the professional appraiser must sign Part III on page 2 of the Form 8283.
- Unclaimed Money site: https://www.usa.gov/unclaimed-money
- The Bean Counter: http://www.dwmbeancounter.com
- The Bookkeeping Master: https://www.youtube.com/watch?v=IhYJbCAcCKE
- Reconstruct the entire history of your ownership and compute your basis : www.netbasis.com
Apps for recordkeeping and mileage
- DeductR: http://deductr.com
- Expensify: https://www.expensify.com
- FreshBooks: http://www.freshbooks.com
- MetroMile’s mileage app: https://www.metromile.com/technology
- Mint: https://www.mint.com
- Outright: http://outright.com
- QuickBooks: http://www.quickbooks.com/App
- Quicken: http://www.quicken.com/stay-connected-your-money
- Shoeboxed: https://www.shoeboxed.com
- Taxminimiser : http://taxminimiser.com
- Dome : http://www.domeproductsonline.com/dome-books.
- wilson Jones: http://www.wilsonjones.com/wj/us/us/s/2252/accounting-suppliesaspx
- Go Safe Guard: https://www.gosafeguard.com/business.
- The IRS’s Free File Alliance system: http://freefilealliance.org/free-file-alliance-members
Recommended Tax Software
- H&R Block.
- TaxAct.com (Less Expensive)
- Tax Association: https://www.taxsites.com/associations.html
- IRS list of exempt organizations: https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.
- Intuit’s ItsDeductible software : https://turbotax.intuit.com/personal-taxes/itsdeductible
- Trans Union—http://www.transunion.com/childidentitytheft
All the Best in your quest to get Better. Don’t Settle: Live with Passion.