How long should you actually keep your tax returns and forms? This is a question with numerous conflicting answers, depending on how they are framed. There is however, one simplifying answer that can always be the default answer: keep them forever. The IRS or the state tax department can knock on your door demanding for tax returns filed ten years ago, claiming they were never filed. How do you disentangle yourself from that trap if you don’t have a copy of the tax return in question? In these types of situations, it’s better to be safe than sorry

Other than your tax returns, you must also keep proof of payments made. If you mailed a tax payment alongside the tax return, you must securely keep the canceled check with the return. The same applies to any refunds received. Any of the three items will clearly confirm that without a doubt, the tax returns were filed and tax amount paid-you are safe.

Asset purchases and acquisition are of great interest to the IRS. Make sure that copies of any assets purchased are kept for the life of the asset in question plus an additional ten years, or for the life of the loan on the asset and an extra ten years. For real estate, just tuck the paperwork somewhere until you sell it off to someone plus an extra ten years after selling. The idea is; keep all documents for not less than ten years after their useful life or past the tax return filing date.

Besides IRS issues, saving these documents may serve you other purposes. You never know when old documents can make you money. For instance, someone who owed you in the past might have evaded paying by filing for bankruptcy. The same individual may come back ten years later, ready to pay whatever you are owed (even with interest). If you shred the paperwork, there is no way you can prove that you are owed.

The statute of limitations might give you an idea on how long you should keep tax documents, but one thing that must stick to your mind; every time you shred tax related documents, you are possibly shredding documents that may save or even make you money in the future. With a proper filing system in place, record keeping shouldn’t be much of a hassle, at least not as much of a hassle it would be if you need them and are caught without them.

There are many things we would like to cross off your “bucket list” before we “kick the bucket,” such as visiting all the continents, jumping out of an airplane, or just trying new things. What most taxpayers don’t know is that they can deduct some costs of the common items on their bucket list or even take them as credits on their income tax returns.

1. Purchase Your Own Boat and Cruise Around the World: Your main home’s mortgage interests and estate taxes can be itemized and deducted on the Schedule A. It is also possible to claim costs linked to a second home, which in this case, includes a boat, so long as it has sleeping, bathroom, and cooking facilities. This means that your mobile home mortgages can also be deducted from your income tax, but under some limitations. Go ahead, own a boat and make it your second home-Uncle Sam will help you out.

2. Volunteer for a Charity in Exotic Locations: Out-of-pocket expenses incurred when offering voluntary services to a qualified tax-exempt charity organization are deductable. Therefore, you can travel to Costa Rica’s rain forests to clear trails and deduct your trip’s costs, so long as the primary objective of the trip is charity work.

3. Learn A Foreign Language: Do you know that you can learn a foreign language for fun and claim up to $2,000 of Lifetime Learning tax credit? The nonrefundable credit amounts to up to 20% of higher education tuition and fees paid by qualified students. Note that this credit starts to phase out once your AGI hits $102,000, or $51,000 for couples and singles respectively.

4. Pop the Question: No, you cannot deduct the costs of your fancy marriage ceremony. However, most married taxpayers who mark the “married filing jointly” box on the IRS Form 1040 realize reasonable savings in taxes.

5. Participate or Win a Marathon: The IRS expects all winnings, be it in a race or gambling, to be reported as “other income,” which is taxable. However, you are free to claim related costs such as entry fees, appropriate gear, and associated expenses, as “miscellaneous itemized deductions” on Schedule A. Keep in mind that these deductions are only but limited to the amount of your winnings.

6. Take a Business Trip Down Route 66 or Pacific Coast Highway: Business trips don’t have to be boring. You can have fun by taking a much more exciting or scenic route and claim basic business travel deductions like airplane tickets, bus, train, or car mileage. Never lose these documents, because the IRS will demand verification.

7. Go Gambling in Vegas: Other than business deductions, you can also deduct loses as a result of gambling up to the amount of your winnings if you itemize. Losses must be properly documented as well as the receipts, tickets, and log of bets. Go roll the dice in Vegas or Atlantic City and claim a deduction from Uncle Sam if things don’t work out in your favor.

8. Enjoy Your Hobby: There are two ways in which your hobby can be tax beneficial. First, you may want to write a book or sell your pieces of art and deduct the costs if you realize any associated income. Note that only deductions up to the limit of the income are allowed; losses cannot be deducted. Alternatively, turn your hobby into a legitimate business and deduct qualified business expenses. All you have to do is run the business professionally, and not as a hobby to qualify.

9. Adopt a New Baby: You can claim dollar for dollar tax credits in child adoption expenses of up to $12,650. These expenses include court charges, fees paid to your attorney, travel costs, amongst others. It is possible to carry the credit to the following year if you cannot use the whole of it in a year. Ensure that you have all necessary records in place, including final decree, certificate of adoption, and even costs incurred in establishing the child’s special needs. This credit starts to phase out the moment your AGI surpasses the $189,710 threshold.

10. Improve Your Home: Any home acquisition debts secured by the home, including a mortgage taken to construct or immensely perk up your primary or second home are deductable. You can also choose to use part of your home for business and deduct the business use expenses of your home.

There are many things you can do for fun and self fulfillment that allows you to claim a deduction or credit from the IRS. You can get your college degree, go golfing, horseback riding or even surfing with business partners, start a scholarship fund, etc. Just ensure that you understand the requirements lest you end up with a huge avoidable bill.

Parents expect the best from their children. Proper financial management is an important concept that should be introduced to kids as soon as they are old enough to understand the dollar and the power it wields. And once they start earning money, you must bring the IRS into the picture and familiarize them with how the tax system works; you must gradually prepare them for Uncle Sam, who will definitely take a fraction of their earnings through withholdings.

Introduce your kids to the IRS forms, especially the W-2, that kicks in the moment anyone is hired. In fact, the IRS is paid even before the employee, who receives his or her paycheck after all the taxes are deducted.

It really doesn’t matter how much you would love to hold onto your children; they will not live with you forever. In fact, even if they live with you, it doesn’t mean that they can be claimed as dependents. You must understand when a child can and cannot be claimed as a dependent, because there are very specific rules. Note that dependency issues can get a bit tricky and you can get the comprehensive information regarding this by talking to a tax professional.

Your children, step-children, foster kids, brothers and sisters, or some 0other distant relatives can all be claimed as dependents if they are below nineteen years, have lived with you for at least half of the tax year, and you provided more than 50% of their total support. The age limit is stretched to 24 for full-time students.

The most complicated part of the dependency provision is the rule concerning 50% of their support. There are some teenagers with well-paying jobs that can support themselves without relying on their parents’ money. However, you may pay a lot more for your kid’s expenses than you think; you definitely want to think about the cost of housing for the child, and other necessities such as cell phones, medical bills, insurance coverage, clothing, school fees, your name it. If these all total up to more than 50% of the child’s expenses, then you are a step closer to being able claim him or her as a dependent.

If a teenager makes $8,000 and doesn’t save a dime, this translates to about $7,000 net income. This can possibly exceed what the parents actually spent on him or her. In such instances, it is the child that gets the exemption, not the parent. It may seem impossible for a teenage kid to make $8,000 from flipping burgers, but it is true for a lot of other jobs that kids may take up; for instance, one of the famous child actors or musicians out there.

Note, that there is only one exemption for everybody. If a parent claims a deduction, the child shouldn’t and vice versa. Communication during tax filing and some professional assistance will come in handy to avert any challenges of double-dependency claims.

Taxpayers are always on the lookout for ways to cut their tax burdens. The IRS offers a variety of tax deductions and credits that are tailored towards the realization of this objective. For small business owners, a vehicle deduction is very important, as it helps in not only lowering the cost of doing business, but also the tax bill.

Just like any other deduction, you are expected to present up-to-date documentation to successfully write this off. To be safe, ensure that the documents you present are originals and not copies or reconstructed. Reconstructed documents can easily be rejected and your deductions thrown out altogether, so don’t risk your money.

Do you use your personal car for business? Well, if the business use of your personal car is under 50%, you can take a deduction depending on the rate of mileage times the number of miles covered transacting business. You can only deduct the real expenses if your vehicle’s business usage exceeds 50% of the total time. Note that you are required to choose the standard mileage rate for a car if you select this option the very first year of owning the vehicle. However, you are free to swap between actual expenses and the standard mileage rates in future years.

Regardless of the method you opt for, make sure that the total mileage and business miles covered are tracked. For 2012, the mileage rate stood at 55.5 cents for every mile, this has shot to 56.5 cents in 2013.

The IRS is a revenue collection agency, and doesn’t like the idea of dishing out money in the name of deductions or credits. In this regard, you must make all claims as viable as possible by properly keeping all documents safe. See to it that the beginning odometer reading on Jan 1 and the ending reading on Dec 31 are accordingly recorded in your appointment book. The total mileage for the year is the difference between the two. To those who find it tricky to carefully keep mileage log, try marking your business miles and personal mileage for a number of weeks every quarter to establish the percentage of business expenses that will be claimed from the tax return.

You can also check your car repair or maintenance files for your odometer readings as they are usually recorded by your mechanic after every visit. Go through the receipts from the beginning of the year to the end. If you service your car regularly, you stand a high chance of making a very accurate estimation.

For taxpayers who work from their homes, your business mileage sets in the moment you hit the driveway. Trips to the supply store, meeting clients, attending business conferences, or meetings are all deductible. You can also use Googlemaps or any related apps to establish your mileage if you forgot to record them.

Actual expenses deductions covers fuel, repairs, car washes, vehicle registration, insurance, interest on car loan, upgrades: almost any amount spent on your car. Understanding the business use of your car will go a long way in helping you establish the most accurate deduction and spare you any troubles with the IRS as you lower your tax bill.

Most people don’t like thinking about death, which is an inevitable part of human life. The passing on of a loved one is stressful and can be devastating, but the surviving spouse has to make major decisions that will definitely affect how he or she will pay his or her taxes in the future without the other party. Just like marriage and divorce, death of a spouse changes many tax aspects of the surviving spouse, some with serious tax consequences.

There are two distinct issues that will determine how a surviving spouse will file the tax returns with the IRS:

Example one: The married status of a surviving spouse will be a factor to consider in the first scenario. If for example, John married Betty but unfortunately, Betty passes way in February within the same year. If John marries again in October, he will have to either file married jointly or married but separately with the new wife. Betty’s tax returns filing can be filed as married but separately if need be.

Example Two: If John remains single, he and Betty can file jointly or separately as a married couple. But in this case, John will pick the best alternative since the IRS doesn’t stipulate any exemptions for surviving spouses who file their tax returns jointly as married even if their spouses died within the same fiscal year of tax return filing.

The following year after the death of a spouse, the surviving spouse will file their tax returns depending on whether they have dependants or not. If John has a child who fully depends on him and one who stays in his home for the whole fiscal year, then Qualifying Widow (Widower) can apply in John’s case. If he decides to use this option, then he gets the opportunity to benefit from the standard deductions on Joint Married Filing as well as using the tax tables.

However, if John does not have a dependant, he will file single status. But in case there is a dependent child, then he can qualify and benefit from the Head of Household filing status two years after the passing of a spouse but it is imperative to note that some states do not have such a special status for surviving spouses.

If one loses his or her spouse within a given fiscal year and they chose to remain single, he or she can file a joint return within that very year, and so long as he or she has qualified dependant(s), he or she can benefit from tax relief on the basis of a surviving spouse in the next two subsequent years. Although losing a loved one can be a devastating event, one should capitalize on every tax break with their new filing status in order to lessen the financial blow of losing a partner.

In their efforts to lower operational costs and maximize returns, some employers may resort to deliberate payroll-tax evasion strategies like deliberate employee misclassification. Some legitimate employees can deliberately be misclassified as contractors, and thus, the employers can strategically evade paying unemployment taxes or their portion of payroll taxes and other legally stipulated employee benefits.

Employee misclassification is associated with the tax law and sheer violation of the labor law. The IRS is fully aware of these schemes and is hunting down employers engaged in this dangerous malpractice that denies taxpayers their rights as well as Uncle Sam millions of dollars annually.

Employee misclassification is common in industries where workers suffer wage violations. These workers work for very long hours and are paid poorly. This does not only affect the well being of the employees, but that of their whole families, who rely on them for survival.

In their efforts to end work-related mistreatment, a partnered venture involving the U.S. Department of Labor, the IRS, and State labor departments encouraged mutual information sharing. To their surprise, they discovered that Uncle Sam is being swindled millions of dollars due to an alarmingly high amount of misclassified employees.

It is because of this that the ‘Voluntary Classification Settlement Program’ was launched by the IRS in September 2011. The program was mainly meant to persuade the falsifying employers to correctly reclassify the workers. This official pardon encourages companies to make the necessary amendments before an IRS audit is performed, which will investigate and penalise them for any unpaid taxes as a result of misclassification of workers.

The federal investigators on the other end ensure the workers are listed on the payrolls. In case an employee believes that he or she is being misclassified, they are encouraged to inform the federal agents. The biggest challenge facing this initiative is fear of the consequences of turning in your boss; you may just be shown the door the moment the federal investigators step out of the company gates.

Since the employers have control over their employees, it becomes their responsibility to split the FICA tax payments with their employees. Workers misclassified as contractors have to pay Social Security and Medicare taxes entirely on their own, which is very unfair, especially if their wages are pretty low.

Employees who feel that they are being misclassified are encouraged to talk to their employers about this issue. There are however, some employers who would rather keep you as a contractor for as long as they wish, but not as an employee. If they fail to act, then you can simply file the IRS Form SS-8 and let the IRS will look into the matter before acting accordingly.

The only consistent thing in life is ironically, change. If you get married, you may not only change your home, you also may change your name, change your lifestyle, become kin to an extended family, but you may even open a joint bank account and everything in it. However, one of the biggest changes in marriage is your taxes and you must be prepared to adapt to these changes in your life. The following is a list of how marriage affects your taxes, and what has to be done to remain safe from IRS trouble.

Name Changes and SSN:  It is essential that you Social Security number and name match those on your tax returns.  For a bride who in most cases, takes up a new name, the first thing to do is to report the name change to the Social Security Administration and get a new Social Security card.  The application form can easily be obtained online or by calling the Social Security Administration office closest to you.

Address Changes: It is possible that you may have to move to a new home to accommodate your growing family. Inform the Postal Service of any address changes through the U.S. Postal Service website or by visiting the nearest post office. You will also have to inform the IRS of your new address.  Download the IRS Form 8822 online from the IRS official website and fill in the new address.  You can also update your Address by calling the IRS’s toll free number. Another person that must be informed about your address and status change is your employer to facilitate the Wage and Tax Statement Form W-2 yearly.

Withholding Check: Are you and your spouse both working? If yes, then you have to check your current withholdings and determine the amount of withholding that is appropriate for your new marital status. Fill out the necessary forms and take them to your employer for accurate withholding.

Right IRS Tax Forms: There may be too many different IRS tax forms out there, but it is not justified to fill the wrong ones. Did you know that you can save a lot of money by choosing and filing the right tax forms? As newly-weds, there will be more deductions that will set in. There are specific forms for itemized deductions, including the IRS Forms 1040EZ, 1040A, or 1040.

Filing Status: You marital Status as of December 31^st determines if you are married or not for that full year for taxation. You also have the option of either filling for the income tax return as an individual or jointly as a couple. Each of these has its advantages and maybe some disadvantages; scrutinize your options and settle on what suits you best.

Conclusion

As you make plans for your wedding, don’t forget to consider how saying “I do” will affect your taxes. A wedding presents an array of tax opportunities as well as challenges. Understanding these factors will simplify the process of settling into change.

Criminals have become excessively creative in their methods to steal anything from anyone today. The internet offers fraudsters the perfect avenue to contact unsuspecting individuals using an array of devious strategies. You might have come across some emails purporting to have originated from the IRS-don’t bite the bait; the IRS does not initiate communication with the taxpayers via emails.

Because the IRS is well known for its numerous and even confusing correspondences, it is still not yet very clear to most taxpayers how to guard themselves from fraudsters. What most people do not know is that IRS never sends any correspondence via the internet. The IRS will only send notices or tax documents through U.S. mail.

Most of these scam emails that might land in your inbox may ask for personal information which, if disclosed, can only be comparable to opening your front door to a gang of burglars. This is a very simple method to get access to your bank information and credit card finances. Most of the emails sent for phishing purposes contain links, which if clicked, can install data-extracting viruses or some other malware into your computer with ease. This makes it possible for the hacker to trace your personal information by monitoring the keystrokes of your keyboard; simple, but very dangerous.

The IRS website is unique in numerous ways, and phony emails stand out. However, if you are in a hurry to open and read the emails, you might not even the difference between irs.gov and something like irs.com or even worse, girs.com. The senders of these emails could be anywhere in the world. Note, that these individuals go an extra mile to copy the IRS website, even though most of them do such a shoddy job, and a single glance is all you need to detect danger.

Another important factor to consider is the English used on the website. There is a clear distinction amongst various English languages, but U.S. English is distinctive. However, countries like Russia are hiring native English writers and English-trained professionals to write acceptable U.S. English that can lure even the most astute mail readers. Even though you need to watch out for improper English, it is no longer a red alert. There are some perfectly coded websites with amazing U.S. English content still linked to phishing scams.

If you receive such emails, do not be in a hurry to respond to them, scrutinize the details of the website and if there is anything fishy, report them to the IRS. A simple search on the IRS website with the keyword “phishing” will open up some links on how to report such cases.  Finally, before making any monetary transactions, it is important to research and verify the organization or company.

Above the line deductions bring down your taxable income, which brings down your taxes. These deductions include alimony, expenses related to work, student loan interests, health insurance deductions for the self-employed, retirement contributions, and bank charges on early withdrawals from saving accounts.

These deductions are officially referred to as adjustment to one’s income; but they are commonly called deductions because they are deducted from your earnings to arrive at the final Adjusted Gross Income.  These deductions are optional, but claiming them goes a long way in reducing your taxable income.

On the IRS Form 1040, three main deductions are included.  These deductions include educator expenses, business expenses, and health savings account deductions.

Educator Expenses Deduction: This gives teachers the opportunity to have the amount spent on classroom supplies to go untaxed. This deduction also includes repayment of student’s loans. It is possible to claim up to $250 of the educator expenses. These are untaxed funds that eligible taxpayers, mostly educators, can claim.

Business Expense Deductions: This does not cover all business expenses but applies to some.  On the Schedule A, it appears as a miscellaneous deduction and not necessarily as a business expense.  It can be claimed by filling either the IRS Form 2106-EZ or the IRS Form 2106.  Both forms are available online and can be filled online too. This deduction does not carter for all taxpayers, but for a selected few including performing artists, military reservist, and fee-basis government officials. 

Health Savings Account Deduction: This is like a health insurance policy where those that participate therein are allowed to put aside some money which is tax-free, for medical bills.  It functions in the same fashion as a retirement fund.

Generally, the above the line deductions have a positive effect on taxpayers as they give funds that are tax exempted.  However, there also are deductions below the line; whatever deduction that follows below the gross income are taxable. If there is a deduction of $1,000 above the line, it gives you $1,000 tax exempted income, which reduces your gross taxable income.

The above line deductions can easily be claimed directly on the IRS Form 1040; the taxpayer doesn’t have to go through the hassle of filling out a Schedule A. The secret to claiming deductions is to understand how they work; this will go a long way in lowering your tax bill.

Most taxpayers heave a sigh of relief moments after filing their taxes, stash away related documents, look forward to their tax refunds, and wait for next year’s tax day. Though taxpayers have more than ten months to prepare for next year’s tax filing season, the majority suffer from procrastination; only remembering about tax filing a few weeks or days before the tax day. This poses the danger of missing out on important tax deductions, possible errors that could beckon an IRS audit, or even missing the tax filing deadline, which might attract hefty fines and interests.

The secret to successful tax filing lies in proper record keeping, which can best be achieved through the following three main ways:

1. What Are Your Possible Tax Deductions And Credits?

Tax payment and filing can be hectic, but they pay off if you claim tax deductions and credits you are eligible to. You must therefore, project any possible credits and deductions you are likely to be entitled for during the year. Assuming that you enroll your children to a daycare, you might qualify for a Child tax credit. Just keep an eye on your expenditures and ensure that you have the tax ID number of the childcare provider. The same applies to eligible deductions as a result of making donations to charities, use of business cars (where you have to keep track of the mileage by using a log), amongst others. You have to be informed about what will happen during the year to successfully keep necessary tax documents for easy tax filing.

2. Design a Filing System

A properly organized filing system is the gateway to stress-free tax filing. You must ensure that everything is organized by carefully labeling your files like “tax receipts” or related items. Similar documents must be filed in appropriate files, which have to be kept at an easy-to-access place like your desk or convenient drawer. In the beginning, it might appear a bit tricky and tedious, but with time, you might even start doing it without having to think about it. The same applies to tax documents like W-2s, which should be safely stored as soon as you retrieve them from your mailbox. When you finally start filing, it will be a breeze.

3. Go Digital in Record Keeping

The best way to safely keep your tax records for a very long time and for speedy future access is to store them in paperless form. This is very convenient and easy; just create a file on your computer or even in the cloud where scanned tax documents can be saved. There are some apps like the Shoeboxed that are helpful in storing digital versions of your receipts. You can even use your smartphone to capture the image of the documents and digitally file them away.

Since tax documents contain very sensitive information, taxpayers are encouraged to use passwords or encryptions. Regular back ups are also important so that you don’t lose the information. For simplified tax filing, plan in advance and keep the necessary tax documents.