Janell A. Israel & Associates
January 2007 Tax Newsletter
What's New in taxes:
IRS Has 95,746 Undeliverable
Refunds
Are you still waiting for
your tax refund? If so, you may be one of the 95,746 taxpayers to whom the IRS
has been unable to deliver a refund check. The refunds total $92.2 million.
Every year there are
taxpayers who don’t update the IRS or the U.S. Postal Service when they
move or change their mailing address. Checks are mailed to the last known
address for taxpayers, and when the address isn’t current, the checks are
returned as undeliverable.
To check on a missing
refund, you can go to the IRS Web site at www.irs.gov and type
“Where’s My Refund?” in the search box. To check on a refund
by phone, call 1-800-829-1954.
Your 2007 Tax Checklist
Gather the tax documents
needed for filing your 2006 tax return — the W-2s, 1099s, and other
information forms you receive from your employer, broker, bank, etc. If you
detect errors, notify the sender and ask for a corrected copy.
* Get the substantiation
you’ll need for charitable contributions of $250 or more that you made
last year. A cancelled check isn’t enough; you need a written receipt
from the charity in order to take a tax deduction.
If you received something
from the charity in return for your contribution, a written statement is
required on gifts of more than $75.
If you donated a vehicle,
boat, or airplane to a charity, your deduction will be limited to what the
charity sold your item for. The charity should give you Copy B or C of IRS Form
1098-C to substantiate your deduction.
* Check your
children’s need to file a 2006 return. Generally, your child must file a
2006 tax return if he or she had wages of more than $5,150, self-employment
earnings over $400, or investment income (such as interest, dividends, or
capital gains) over $850. If your child had both earned and investment income,
other thresholds apply. Also, your child must file a return to receive a refund
if one is due.
* Make your 2007 IRA
contributions as early in the year as possible to maximize tax-deferred growth.
* There is still time to
make 2006 contributions. If your 2006 IRA wasn’t fully funded by December
31, 2006, and you make any IRA contributions prior to April 16, 2007, designate
to the bank or trustee that these 2007 contributions are for 2006 (up to the
maximum allowed). You can then deduct these amounts on your 2006 return for a
quicker tax benefit.
* If you’re among
the many taxpayers who get a large tax refund this year, do yourself two
favors: (1) invest the refund instead of spending it, and (2) adjust your
withholding for 2007 so your money can be invested for you rather than the
government.
* File business returns
on time. The deadline for filing partnership returns is April 16, 2007.
Calendar-year corporation tax returns are due by March 15, 2007.
New Business:
Formula For Telephone Tax Refund Is Announced By The IRS
After losing several
court challenges to charging an excise tax on long-distance telephone service,
the IRS is no longer assessing the tax. In May of 2006, the IRS announced that
it will refund the tax paid by individuals, businesses, and tax-exempt
organizations during the 41 months from March 2003 through July 2006.
Individuals can claim
their refunds by calculating the actual tax they paid, or they can take a
standard refund amount based on the number of personal exemptions they claim on
their 2006 tax returns.
The IRS has also provided
businesses and tax-exempt organizations with a formula to estimate the amount
of refund to which they’re entitled. The formula can be used by those who
don’t want the bother of going through 41 months of phone bills to
calculate the exact taxes paid.
To claim their refunds,
businesses (including sole proprietors, corporations, and partnerships) and
tax-exempts are to complete Form 8913 (Credit for Federal Telephone Excise Tax
Paid) and attach the form to their regular 2006 income tax return or, in the case
of tax-exempt organizations, to Form 990-T. The form allows taxpayers to either
claim the actual amount of refundable long-distance telephone excise taxes paid
during the 41-month period or to use the IRS simplified formula to figure the
refund.
What's New in Finances:
What You Need To Know
In Order To Simplify Your Recordkeeping
Deciding which records to
keep and for how long can be a confusing process. A well-organized system will
help you retain important paperwork and minimize the clutter. Use legal
requirements and your common sense as guidelines for how long to hold on to
records.
* Tax records. You should
keep tax records for at least as long as it is possible for tax authorities to
audit your return. Generally, the IRS has three years after the return is due
or filed, whichever is later, to examine your return and assess additional tax.
This is called the “statute of limitations.” If you’ve made a
major error on your return (defined as omitting more than 25% of your gross
income), the IRS has six years to examine your return. There is no statute of
limitation for fraudulent filing or for returns that are not filed at all.
To be on the safe side,
keep your tax records for seven years after a tax return is filed.
The IRS does not require
that you keep your records in any particular way. The only requirement is that
your records allow you and the IRS to determine your correct tax liability.
Keep checks, receipts, and other records that document the income and
deductions you report on your tax return. Copies of tax returns themselves
should be retained permanently.
* Home. Expenditures for
your home fall into two categories: “repairs” (such as routine yard
maintenance and painting) and “improvements” (usually big-ticket
items such as room additions).
Discard repair receipts
once the warranty period expires, but keep receipts for improvements
indefinitely. Improvements add to the tax basis of your property. Despite the
$250,000 capital gain exclusion amount ($500,000 for joint filers), substantial
increases in market value could make you liable for capital gains tax when you
sell your home. Complete records of your home’s original cost plus
improvements will help reduce any taxes due.
* Investment records.
Investment records generally should be kept until the investment is totally
liquidated, plus a period of seven years. Keep any records for taxable accounts
that show reinvested dividends. You can usually toss monthly or quarterly
investment statements if you receive a comprehensive annual statement.
* Investment real estate.
Keep all documents relating to purchases of property, along with substantiation
for improvements made to the property. Keep written appraisals
and tax depreciation schedules.
* Individual retirement
accounts. Keep copies of Forms 5498, 8606, and 1099R until all money has been
withdrawn from your IRAs. Good records are necessary so that you aren’t
taxed on nontaxable withdrawals.
* Insurance. Keep your
current policies and 12 months’ worth of cancelled checks and statements.
Ask your insurance agent about discarding expired policies. Your liability for
prior years can vary.
* Estate planning
documents. In your home, keep a copy of your current will, any trusts, and any
special directives. Give the originals to your attorney, and consult your
attorney about destroying all out-of-date documents.
* Keep it simple. In most
cases, you don’t need an elaborate recordkeeping system to keep your affairs
in order. File tax returns separately by year, and file investment records by
broker. For expenses, even an accordion file tabbed by category works wonders.
If you have any questions
or need assistance in setting up a recordkeeping system, give us a call.
Take a Break
Did you know…
Armored knights raised
their visors briefly to identify themselves when riding past the king. This
custom was the basis for the military salute of today.
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The information contained in
this newsletter is of a general nature and should not be acted upon in your
specific situation without further details and/or professional assistance. For
more information on anything in the ONLINE ADVISOR, or for assistance with any
of your tax, business, or financial strategy concerns,
contact our office.