Year End Tax Tips 2008 - Tax Preparation
Tax Tips Q&A
Read Kevin McCormally's answers to tax questions submitted by NBR's viewers.
Click on a tax topic to explore related questions and answers.
This feature is intended to provide general information and education and should not be considered as investment or tax advice. Each individual should consult his or her own tax, financial, or investment advisor.
Tax Preparation & Tax Forms
QUESTION: Keeping Tax Records
How long should one retain or keep permanently: periodic
and annual/year end Mutual Fund reports or statements, federal & state
tax returns with documentation?
-- Ed Lawrence, Clifton, NJ
ANSWER:
I like to keep my tax returns forever, as historical documents.
As for mutual fund statements, you need to keep them as long as you might need them to establish the tax basis of the fund...that is, the original purchase plus any and all dividend reinvestments. If your fund keeps track of your average basis, and you use that method to report gains and losses, you don't need the statements.
In general, you should keep records that apply to your
tax return for three years after the year the return is filed. That's
how long the IRS has to come back and audit you, in most case. If fraud
is involved, there is no limit, although I'm confident that's not the
case in your case
-- Kevin McCormally, Editorial Director, Kiplinger Washington Editors
QUESTION: Claiming Full Business Expense vs Depreciating It
Kevin, I own a small business. I purchased a computer recently and beleive that I can write it off completely in 2008. Wasn't this a Bush tax incentive? Joel
-- Joel, Henderson, NV
ANSWER:
Yes, you can "expense" the full cost of the computer, rather than depreciating the cost gradually over several years. As part of the economic stimulus package, Congress increased to $250,000 (from $128,000) the amount that businesses can expense in 2008. This is known as the Section 179 deduction, and you'll claim it on Schedule C, where you report your business income. You'll also need Form 4562.
-- Kevin McCormally, Editorial Director, Kiplinger Washington Editors
QUESTION: 1099-MISC Minimum Amount
Dear Kevin McCormally,
This year I worked for an employer and as a private contracter. As a contracter, my wages will be reported on a 1099MISC form. My question is; "Is there a minimum amount I have to make on the 1099MISC before it has to be reported as income on my taxes?"
Thank you.
-- Ed, Novi, Michigan
ANSWER:
Although companies don't have to send 1099s to workers who make less than $600 during the year, there is no minimum for the amount that the worker has to report to the IRS. Some people think the $600 trigger means the first $600 is tax-free, but that is incorrect. Everything you earn as an independent contractor is supposed to be reported to the IRS on a Schedule C. And, if you earned more than $433 in self-employment income, you have to pay the Social Security and Medicare tax on the amount -- equal to 15.3% -- in addition to income tax. You figure the self-employment tax on Schedule SE. There is some good news, you can deduct your job related expenses on Schedule C, too, which will reduce both your income and Social Security taxes on your earnings.
-- Kevin McCormally, Kiplinger's Personal Finance
