If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits.

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why:

A qualified disaster relief payment is an amount paid:

• To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster.
• To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster.

Qualified disaster relief payments exclude any income replacement payments, such as payments of lost wages, lost business income or unemployment benefits and would be taxable. In addition, although an employee is not required to substantiate that the qualified disaster relief payments are related to a qualified disaster, the employer may exclude such payments from income only to the extent that insurance does not otherwise compensate the employee for the loss.

To be deductible in 2012 these payments must be made by December 31, 2012.

It is a very good idea to purchase an inexpensive program such as Quickbooks to help categorize your income and expenses. You can email the “Accountants copy” to your accountant while you continue to work in Quickbooks. Any changes your accountant makes can be imported back to Quickbooks. Call Matis at 646-580-1099 or email matis@1099bookkeepers.com for help in setting up your Quickbooks program.

1. In most cases, the IRS does not require you to keep records in any special manner. Generally, you should keep any and all documents that may have an impact on your federal tax return. It’s a good idea to have a designated place for tax documents and receipts.

2. Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return
• You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

3. If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response.
7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call.
8. It’s important that you keep copies of any correspondence with your records.

1. Make sure the organization qualifies.
   Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.
2. You must itemize.
   Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. What you can deduct.
   You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
4. When you receive something in return.
   If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Recordkeeping.
   Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
6. Pledges and payments.
   Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
7. Donations made near the end of the year.
   Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. Large donations.
   For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
9. Tax Exemption Revoked
   Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

1. Notify the Social Security Administration Report any name change to the Social Security Administration so your name and Social Security number will match when you file your next tax return. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.ssa.gov, by calling 800-772-1213 or at local offices. If you do not notify SSA then you will not be able to use your married name on your tax form if you file electronically.
2. Notify the IRS if you move If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from www.IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
3. Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence or refunds.
4. Notify your employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check your withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on www.irs.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will give you the information you need to complete a new Form W-4, Employee’s Withholding Allowance Certificate. You can fill it out and print it online and then give the form to your employer(s) so they withhold the correct amount from your pay.
6. Select the right tax form Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
7. Choose the best filing status A person’s marital status on Dec. 31 determines whether the person is considered married for that year. Generally, the tax law allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but usually filing jointly is more beneficial.
8. The last thing to remember is to call Matis at 646-580-1099 or email matis@1099bookkeepers.com for any tax help you may need!

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1. There are three options for obtaining free copies of your federal tax return information – on the web, by phone or by mail.
2. The IRS does not charge a fee for transcripts, which are available for the current and past three tax years.
3. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.
4. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.
5. To request either transcript online, go to www.irs.gov and use our online tool called Order A Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message.
6. To request a 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T, Request for Transcript of Tax Return.
7. If you order online or by phone, you should receive your tax return transcript within five to 10 days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail.
8. If you still need an actual copy of a previously processed tax return, it will cost $57 for each tax year you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. Please allow 60 days for actual copies of your return.
9. The fee for copies of tax returns may be waived if you are in an area that is declared a federal disaster by the President. Visit www.irs.gov, keyword “disaster,” for more guidance on disaster relief.
10. Visit www.irs.gov to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

For additional help with this and other tax information call Matis at 646-580-1099 or by email matis@1099bookkeepers.com

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

1. When to amend a return You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
2. When NOT to amend a return  In some cases, you do not need to amend your tax return.  The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return.  In these instances, do not amend your return.
3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ.  Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
4. Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B.  There is an area on the back of the form to explain the specific changes and the reason for the change.
6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
7. Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X.  You may cash that check while waiting for any additional refund.
8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
9. When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

By Karen Hube,  

The Internal Revenue Service has added a couple of notches to its enforcement belt. First came the disclosure that international financial services giant Credit Suisse is under federal investigation for helping U.S. citizens avoid taxes using foreign accounts. Then came multi-platinum rapper Ja Rule’s conviction for failing to pay taxes on $3 million in earnings. He was sentenced to 28 months in prison.

Gulp.

These high-profile examples of stepped-up IRS enforcement can’t help but fuel worry even among the most honest taxpayers: Will the IRS raise a question on my return? Was there a faulty calculation? Did I claim a deduction that will raise a red flag?

Depending on your occupation, income and the kinds of claims you’ve made, there may be reason for concern. With government revenue in short supply, the IRS has begun bearing down on specific groups of wealthier taxpayers and is showing far less sympathy than in years past, accountants say.

“Our firm has 21 offices up and down the West Coast, and in every office there’s been an increase in examinations,” says Gary Stirbis, who handles the IRS controversy practice at Moss Adams. “The IRS has been less flexible, and agents seem to be under internal pressure to collect more aggressively.”

A directive from Congress in 1998 to shift IRS resources reduced enforcement activity, but it has recently climbed again. Before Congress stepped in, there were 25,215 key IRS enforcement staff positions. That number fell below 20,000 by 2003. It’s now 22,710 — not a big increase, but enough to turn up the heat a little.

And new programs have been launched to help spot problem returns, according to Steven Miller, deputy IRS commissioner for services and enforcement. Last year, the IRS created the Global High Wealth Industry Unit, in which agents work in teams to evaluate wealthy taxpayers’ profiles. “When you look at the 1040 [form], it doesn’t tell the whole story,” Miller says.

This year, in an effort to crack down on underreporting of income, agents will begin reviewing credit card statements and cross-checking data against tax returns, Miller says. Big spenders who claim little income, beware.

Don’t think you’re under the radar just because your income is a tiny fraction of Ja Rule’s millions.

The IRS likes small, inexpensive audits because they can influence other taxpayers to comply, says Bill Smith, managing director of CBIZ MHM in Bethesda. People who see a co-worker or friend get audited are likely to be more careful, he says.

“One audit may only bring in $500, but if you can increase compliance in that group of taxpayers by 20 percent because people hear about the audits, then for the IRS it’s worth it,” Smith says.

Still, for the general population the chance of coming under IRS scrutiny is slim. The audit rate last year was 1.11 percent of all taxpayers, up from 1 percent a year earlier.

Among certain groups the rate is significantly higher. Those who operate their own businesses and are required to file Schedule C forms (estimated by the IRS to be underreporting income by about $68 billion a year) have an audit rate of just over 4 percent. The wealthy get far more attention. The audit rate was 3.1 percent for taxpayers with income of more than $200,000 last year, and 8.1 percent for those earning more than $1 million.

Other broad areas of interest by IRS enforcement agents align with the biggest areas of suspected fraud, such as returns claiming refundable tax credits, over-reporting deductions and offshore accounts.

Some of the IRS’s latest areas of focus, according to the agency and tax lawyers:

Interest deductions for home loans

Taxpayers who claim big interest deductions on mortgages and equity loans have come under scrutiny “because a lot of people have been borrowing on their homes for college tuition or just to live,” says Ira Rubenstein, a principal in charge of the New York region for MBAF-ERE CPAs.

Homeowners are allowed to claim an interest deduction for up to $1 million of mortgage debt, and up to $100,000 of home equity debt. “We worked with one auditor who looked at the amount of the deduction and said, ‘That’s too high for the interest rate,’ ” says Phil London, a CPA and tax partner at Wiss & Co.

Adoption credit

After the adoption tax credit was raised to a maximum of $13,170 last year and it became refundable — meaning you can claim it and get a refund even if you owed no taxes — “the IRS is flagging anyone who took the adoption tax credit last year and asking for proof,” says Diane Michelsen, an adoption lawyer in Lafayette, Calif.

Gifts of property

The IRS has been scouring state property transfer records and comparing them with tax records to find taxpayers who haven’t disclosed real estate gifts, says Beth Shapiro Kaufman, a partner at Kaplin & Drysdale in Washington. With property values depressed, gifting real estate has become more popular, particularly among wealthy folks.

Under current law, you must file a tax return for gift values in excess of $13,000. Anyone whose undisclosed gift exceeds the $1 million unified credit (the maximum you can give away in a lifetime without paying the gift tax) will be subject to hefty penalties and interest, Kaufman says.

Large donations relative to income

The IRS is sizing up charitable deductions against income, looking for discrepancies. “Some innocent retired people with low income have the wherewithal to make contributions, and get targeted,” says Greg Margarit, a tax partner at Boulay, Heutmaker, Zibell & Co.

Ultra-rich

The audit rate for taxpayers with more than $10 million in income rose to 18 percent from 10 percent last year. And with the IRS’s new global wealth squad, these folks should expect a colonoscopy-style checkup rather than the old-style knee-knock exam.

Looking ahead, it’s unclear how long the IRS can keep flexing its muscles at its current level. The agency has requested that its $12.1 billion budget be ramped up to $13.3 billion next year, but cuts appear likely. This may force the IRS to trim enforcement — or it could mean taxpayer service will be scaled back first, making audits potentially more painful.

A note on my last column, which explained that taxpayers on vacation may be able to claim business deductions when a big chunk of time is spent working:

Chip Watkins, a reader and longtime tax attorney, raised questions about the ability of a taxpayer to ever deduct a portion of meals and lodging on a trip that is primarily personal. He cited this part of the tax law: “If the trip is primarily personal in nature, the traveling expenses to and from the destination are not deductible even though the taxpayer engages in business activities while at such destination. However, expenses while at the destination which are properly allocable to the taxpayer’s trade or business are deductible even though the traveling expenses to and from the destination are not deductible.”

Other tax advisers say the there is room for interpretation, especially for executives and managers who don’t punch a clock. “These rules are detailed, but there are still circumstances not addressed,” such as spending hours a day working on a supposed vacation day, says Stephen Kirkland, a tax adviser at Kirkland, Watson & Dyches. “That’s when you have to make a judgment call.”

Hube is a columnist for The Fiscal Times, an independent news organization that provides original reporting and analysis on fiscal and economic matters.

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