Question: I am a self-employed individual, what kinds of expenses can I deduct on my tax return?
Answer: The IRS require that business expenses be both ordinary and necessary in your trade or business. An ordinary expense is one that is customary and accepted in your trade or business. A necessary expense is one that is appropriate and helpful for your trade or business. An expense does not have to be indispensable in order to be tax deductible.
Question: I am a sole proprietor, do I need an EIN number?
Answer: You do not need an EIN number unless you hire an employee or are required to file an excise tax return.
Question: Should I keep a separate bank account for business and personal expenses?
Answer: Yes.Being able to identify and separate business income and expenses from personal is good business practice. Also, it legitimizes your business, especially in the event of an audit. If you are incorporated, it is imperative to keep personal funds and expenses separate. You could lose corporate protection if you commingle funds.
Question: What can I do to decrease my chances of an IRS audit?
Answer: Unfortunately, the precise criteria used by the IRS when selecting a tax return for an audit is a closely guarded secret. However, there are red flags that will surely trigger an audit such as claiming a large deduction for charitable contributions in comparison to income, claiming large deductions for travel and entertainment expenses, and amending a tax return to claim a large refund.
Question: How long should I keep tax records?
Answer: The general rule of thumb is to retain records until the period of limitations for that tax return expires (usually 3 years from the due date of the return). The period of limitations refers to the period of time you can amend your tax return or the IRS can assess additional tax. For more specific information on record keeping, please refer to the Retention Guide on this website.
Question: How long do I have to file a tax return to claim a refund?
Answer: Generally, the statue of limitations for filing a tax return to claim a refund is 3 years from the due date of the tax return (including extensions).
Question: I did not make enough money this year to meet the filing requirement, should I file a tax return anyway?
Answer: Even if you do not meet the filing requirement, it is always a good idea to file a tax return in case you can claim a refund of taxes withheld or a one-time government credit or rebate.
Question: How long can the IRS collect on my tax balance?
Answer: The IRS has 10 years from the date of assessment to collect on unpaid taxes. There are some situations that can toll the statute of limitations. Please contact us for consultation on IRS tax collections.
Question: Can I claim any education credits for my child who is in college?
Answer: Yes, if you claim your child as a dependent exemption on your tax return, you may also claim an education credit. If your child is not claimed as a dependent on your tax return, then your child must claim the education credit.
Question: What kinds of education credits are available?
Answer: There are two types of tax education credits.
* The Lifetime Learning Credit - available for undergraduate, post-graduate and professional degree courses
* The American Opportunity Tax Credit (formerly the Hope Credit) - Available for the first four years of post-secondary education
The credits are directly reduce your federal tax liability.
Question: How can I put away money for my kid's education?
Answer: There are many qualified tuition programs that can help you sock money away until College Day! Educational IRAs and Coverdell 529 and 530 plans are just a few options to consider. Some education plans, like the 529 plans vary by State.
If you have additional questions, please contact us.