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6 Receipts You Need to Keep for your Taxes

September 13, 2017 by Reynolds & Rowella Leave a Comment

When it comes to taking qualified deductions on your federal tax return, three things must happen:
-Recognize that an expense might be deductible on your tax return.
-Keep a record of the expense in an organized fashion.
-Obtain the proper (and timely) documentation to support your deduction.

This might be obvious to most people, but here are some typical areas where taxpayers often fall short. In the long run, these items could end up costing you plenty during tax filing season, and trigger IRS audits.

1. Cash donations to charity. To deduct and support your deduction to a qualified charity you must have valid support. Donations of cash are no longer deductible if they are not supported by a canceled check or written acknowledgement from the charity. A donation deduction of $250 or more needs to be supported by documentation created at the time of the donation. A canceled check and bank statement are not sufficient. If you get audited, having the charity issue documentation after the fact may not be enough.

2. Non-cash contributions. You need documentation for these donations as well. This includes a detailed list of items donated, the condition of the items and their estimated fair market values. While this level of detail is not required for small donations, keeping good records and taking photos is a good practice.

3. Investment purchases and sales. If you bought or sold an investment you will need to know your cost basis. Today’s regulations require brokers to report to the IRS the cost basis of investment sales. Review your broker accounts and correct any errors. It’s very difficult to defend yourself in an audit when records reported to the IRS are in error.

4. Copies of divorce decrees, alimony and child support agreements. There are often conflicts between two taxpayers taking the same child as a deduction. Do you have the necessary proof to defend your position? The same is true with alimony and child support. Keep these documents in a safe place and be ready to use them if necessary.

5. Copies of financial transactions. Keep copies of documents from any major financial transaction. This includes real estate settlement statements, refinancing documents and any records of major purchases. These documents are necessary to ensure your cost basis in the property is properly recorded. The documents will also help identify any tax-related items like mortgage insurance, property taxes and possible sales tax paid.

6. Mileage logs. Lack of tracking deductible miles is probably one of the most commonly overlooked documentation requirements. Properly recording charitable, medical and business miles can really add up to a large deduction. If the record is not available, the IRS is quick to disallow your deduction.

If you are not sure whether a document is needed, retain it. Then you can always retrieve it if needed.

Contact us at consulting@reynoldsrowella.com if you need more information or have questions.

Reynolds & Rowella | Tax Reciepts

Reynolds & Rowella, LLP is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with clients. As members of Enterprise Worldwide, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Whether closely-held corporations or high-net-worth individuals, we believe we have earned our clients’ trust.

Filed Under: Tax Planning Tagged With: Accounting Services Fairfield County CT, Financial Planning Fairfield County CT, Tax Planning Fairfield County CT

Taxable or not taxable?

May 31, 2017 by Reynolds & Rowella Leave a Comment

Taxable or not taxable? The taxability of income, gifts, or services you receive might surprise you.

Have you ever wondered about the taxability of funds or services you receive? There are many areas in the tax code that cause confusion regarding what’s taxable. These are some of the most common.Alimony.

Alimony

is taxable to the person who receives it and deductible to the person who pays it. Special rules apply. Make sure you have proper documentation as part of a divorce decree to ensure you can support your tax position.

Child support

Child support is not taxable to the person who receives it on behalf of their dependent. It is also not deductible for the person who pays it.

Free services

Free service is almost always taxable as ordinary income under IRS barter regulations. You should report the fair market value of services received as income on your tax return. If you exchange services, you can deduct allowable business expenses against the value of services received.

Illegal activities

Even income received from illegal activities is taxable income and must be reported. Incredibly, the IRS even states that stolen items should be reported at the fair market value on the date the thief stole the item.

Jury duty pay

This is taxable as ordinary income. Yes, even doing your civic duty can be a taxable event.

Legal settlements

A general rule of thumb with legal settlements is to consider what the settlement replaces. If the settlement revenue replaces a taxable item, like lost wages, the settlement often creates taxable income. This area is complex and often requires a detailed review.

Life insurance proceeds

Generally life insurance proceeds paid to you because of the death of an insured are not taxable. However, there are a number of exceptions to this general rule. For example, if you receive benefits in installments above the value of the life insurance policy at time of death, or if you receive a cash payout of a policy, you could have taxable income.

Prizes

Most prizes received should be reported as ordinary income using the fair market value of the item received. This area has been a major surprise to contestants on game shows and celebrities who have received large gifts at celebrations like the Academy Awards.

Unemployment compensation

Typically unemployment compensation is to be reported as taxable income. Many are confused by this because of a temporary federal tax law that made unemployment compensation non-taxable during the recent economic recession. This is no longer the case.
Some of these areas can be complicated. What is most important is to realize when to discuss your situation.

Contact us at consulting@reynoldsrowella.com if you need help.

Filed Under: Tax Planning, Uncategorized Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, Tax Returns Fairfield County CT

Tax bracket, tax rate, what’s the difference?

May 2, 2017 by Reynolds & Rowella Leave a Comment

The difference between your tax bracket and your tax rate is more than a trick question. For example, knowing your tax rate gives you an accurate reflection of your tax liability in relation to your total income. Knowing your tax bracket is useful for planning purposes. For instance, you may want to spread a Roth conversion over several years in order to stay within the income limits of a particular tax bracket.

So, what’s the difference between the two? The main difference is that a tax bracket is a range of income to which a specific tax rate applies, while your effective tax rate is the percentage of your income that you actually pay in tax. Put another way, not every dollar is taxed at the same rate. Your tax bracket shows the rate of tax on the last dollar you made during the tax year. Your effective tax rate reflects the actual amount you paid on all your taxable income.

For example, say you’re single and in the 25% bracket for 2016. That means your taxable income is between $37,650 and $91,150.

Yet the tax you pay is less than 25% of your income.

Why? Because the 25% tax rate only applies to the amount of taxable income within the 25% bracket. The tax on income below $37,650 is calculated using the rate that applies to income in the 10% and 15% brackets.

So, if your 2016 taxable income is $40,000, only $2,350 is taxed at 25%. The remainder is taxed at 10% and 15%, leading to a “blended” overall rate. The result: a tax bracket of 25%, and an effective tax rate of less than that.

Good tax advice can affect both your bracket and your rate. Want to know how?

Contact us at consulting@reynoldsrowella.com.

Filed Under: Best Accounting Firms 2016, Tax Planning, Uncategorized Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, Tax Returns Fairfield County CT

Can’t itemize? You can still claim some expenses on your 2016 federal income tax return.

March 31, 2017 by Reynolds & Rowella Leave a Comment

You don’t have to itemize to claim these deductions on your 2016 return. Here’s how you can benefit.

IRA and HSA contributions

If you made a contribution to your traditional IRA for 2016, or if you plan to make a 2016 contribution by April 18, 2017, you may qualify to deduct up to the maximum contribution amount of $5,500 ($6,500 if you’re age 50 or older). Income limitations apply in some cases, and you can’t deduct contributions to Roth IRAs.

Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow on a tax-deferred basis, and you’re allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. For 2016, you can deduct up to the contribution limit of $3,350 if you’re filing single and $6,750 when you’re married filing jointly. You may also be able to deduct an additional $1,000 if you were age 55 or older and made a catch-up contribution to your HSA.

Student loan interest and tuition fees

Deduct up to $2,500 of interest on student loans for yourself, your spouse, and your dependents on your 2016 return. For 2016 returns, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.

Self-employment deductions

If you’re self-employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.

Other deductions

Alimony you pay, certain moving expenses, and early savings withdrawal penalties are also deductible on your 2016 return, even if you don’t itemize. Teachers can deduct up to $250 for classroom supplies purchased out-of-pocket in 2016.

Contact us at consulting@reynoldsrowella.com for more information on these and other costs you may be able to deduct on your 2016 tax return.

Filed Under: Itemize Deductions, Tax Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, Tax Returns Fairfield County CT

Cleaning up your important documents? Learn what Tax Records you should keep.

March 14, 2017 by Reynolds & Rowella Leave a Comment

It’s that time of year when you are getting ready to sort out last year’s financial records and prepare for this year’s record keeping. Do you know what you should keep and what can you throw away? Here are some suggestions.

Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Keep records of any other income you have received from other sources. It’s also a good idea to save bank statements and investment statements.

Keep documentation that supports all itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of child care expenses, medical insurance premiums if you’re self-employed, and any other deductions that appear on your return.

The IRS can audit you routinely for three years after you file your return or the tax due date, whichever is later. But in cases where income is underreported, they can audit for up to six years.

So, to be safe, consider keeping your tax records for up to seven years.

For more specific recommendations for your individual circumstance contact us consulting@reynoldsrowella.com. We’re here to help.

Filed Under: Tax Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Filing Tax Return, Financial Planning Fairfield County CT, Tax Returns Fairfield County CT

Clean your financial house for the new year

January 11, 2017 by Reynolds & Rowella Leave a Comment

Out with the old, in with the new. No matter whether you apply the expression to changes in attitude or to life adjustments, the end of the year is a great time to assess your household finances and prepare for new opportunities. Here are suggestions.

Review your credit report.

Request a free copy of your credit report from each of the three major credit bureaus. If the reports contain errors, get them corrected.

Make or update your home inventory.

Go through your house and make a video describing what you see, along with information such as purchase dates, prices, and estimated values. Your home inventory can be vital for getting insurance claims approved in case of disaster.

Calculate your net worth.

Your net worth is the value of your assets, including your house, personal property, bank accounts, car, and investments, minus liabilities such as your mortgage, credit card balances, and loans. This is a great yardstick for measuring your household’s financial growth (or shrinkage) from year to year.

Increase your savings.

If you get a year-end raise, consider contributing a portion of the extra money to your 401(k) plan or other savings account.

Purge financial records.

If you’re a financial packrat with stacks of old cancelled checks and bank statements that are no longer needed for an IRS audit or your own use, shred them.

Need help? Contact us at consulting@reynoldsrowella.com to discuss your situation.

Filed Under: Financial Planning, Tax Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, Tax Returns Fairfield County CT

Why Tax Planning Matters to You

November 30, 2016 by Reynolds & Rowella Leave a Comment

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With the fall tax filing deadlines behind us, we like to begin reaching out to our clients to offer assistance with year-end tax planning. Tax planning for our individual clients encompasses a broad range of issues depending on the complexity of a client’s financial picture. We not only look at the current tax year, we also evaluate how actions taken now or prior to year-end will improve their tax situation in both the short and long-term. Planning allows us to identify specific areas where we can help our clients the most and provide true value-added services. Some of the more common areas we like to discuss with our clients include:

1. Addressing any significant (or anticipated) changes in their income, family status, or residency.

2. Discussing the current political climate and the impact potential tax law changes, particularly in an
election year.

3. Avoidance of penalties. Has the client paid in enough tax through either withholding or quarterly payments over the course of the year to avoid underpayment penalties? And how can we help mitigate that risk?

4. Capital gain recognition or harvesting of unrealized losses. We work with the client and their broker or financial advisor to obtain all relevant year-to-date information in their accounts. From this information we can help formulate tax saving strategies for the client.

5. Acceleration/deferral of income and deductions. With many of our clients we see shifts in their tax brackets from year to year, so the timing of income and deductions can yield significant tax savings.

6. Pre-payment of 4th quarter state income taxes, depending on the individual’s exposure to Alternative Minimum Tax.

Remember, good planning is the key to a successful year and we’re here to help you along the way.

Contact us at consulting@reynoldsrowella.com to discuss your situation.

Filed Under: Tax Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, Tax Plannning

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