FAQs ABOUT TAXES
Below are some of the more commonly asked questions about taxes.
How long should I keep my records?
If you understate your income by more than 25% then the period is 6 years. If you file a claim for a loss from worthless securities then the period is 7 years.
If you file a fraudulent return or do not file a return then there is no limit. Property: Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition.
If you received property in a nontaxable exchange(sec. 1031) you must keep records on the old property as well as the new property.
When your records are no longer needed for tax purposes, do not discard them until you check to see if they should be kept longer for other purposes.
Other reasons to keep records: Your insurance company or creditors may require you to keep certain records longer than the IRS does.
Is my child's summer camp deductible?
When summer day-camp season comes around, here’s a way to let Uncle Sam pick up the tab for your children’s fun. Many parents take advantage of the child daycare credit. Well, this same credit can also be used for summer day-camp expenses. The child-care credit applies to expenses you incur for the care of children under age 13 while the parents are working. And “working” applies to both an employee job as well as self-employment. Sending your child to a day-camp during the summer counts as a qualified expense for purposes of the child-care credit.
And by “day-camp”, don’t limit yourself to the traditional YMCA-type scenario. There are plenty of other programs that qualify, such as: 1. Sports camps: Soccer camp, baseball camp, basketball camp, football camp, volleyball. These all count. 2. Academic camps like computer camp or other scholarly pursuits. 3. Fine arts camps for music, drama, and art. Kids (and parents!) sure have a lot of choices these days.
The key requirement for getting the day-care credit is that the camp not be a sleep-over camp. The child must only spend time there during the day. You take the credit on Form 2441, Child and Dependent Care Expenses.
The amount of your credit depends on your income. Take a peak at Form 2441 to calculate your credit: First, find your adjusted gross income from Line 37 of Form 1040. If your income is greater than $43,000, your credit is likely to be 20% of the day-camp expense. (If your income is less than $43,000, the percentage is greater than 20% — so be sure to check Form 2441 if you happen to be at that income level). Next, you multiply the day-camp expense by 20%, and that’s the potential tax credit amount. I say “potential” because there’s one more step to complete the calculation — if your income is greater than $43,000, your maximum childcare credit is $600 if you have one child and $1,200 if you have two or more children with daycare expenses.
So, if you have $1,000 of day-camp expense this summer, you get a $200 tax credit on your personal income tax return. Two-hundred bucks . . . now there’s a summertime treat! Wayne M. Davies is author of 3 tax-slashing eBooks for small business owners and the self-employed. For a free copy of Wayne’s 25-page report, “How To Instantly Double Your Deductions” visit http://www.YouSaveOnTaxes.com
Is our summer vacation deductible?
It is perfectly legal to deduct your next vacation. Here’s how to do it. To qualify for this deduction, you must meet the following two criteria:
1. You are self-employed or own a small business
2. On your next trip, you combine business with pleasure.
The first requirement is pretty cut and dried.
The second requirement is somewhat trickier and will be the focus of this article.
To deduct any U.S. trip, you can combine business and pleasure, but the primary purpose of the trip must be business.
Here’s how the IRS defines a trip taken primarily for business purposes: the number of “business days” is greater than the number of “personal days”.
To complete the definition, travel days are considered “business days”. Here’s an example to clarify the rules:
You take a 10-day “vacation” to Orlando. You spend one day getting there and one day getting back. You spend 4 days attending a seminar. The other 4 days are spent with Mickey Mouse & Company. Let’s tally up the days: Business Days = 6 (2 travel days + 4 seminar days) Personal Days = 4 (doing theme parks).
So, are the number of business days greater than 50% of the total days? Yes. So here’s what you get to deduct: — 100% of your transportation expenses (even though 40% of your days were personal days) — 100% of your “on-the-road” expenses for the 6 business days, including hotel bills, cab fares, rental car, seminar fees, dry cleaning, laundry and meals. (Although the meal expenses are still subject to the 50% rule.)
The on-the-road expenses for the 4 personal days are not deductible. But you’re still getting a great tax break here.
Assuming you spend $1,000 for transportation and the 6 business days, a sole proprietor in the 35% tax bracket (15% federal tax + 15% self-employment tax + 5% state tax) saves $350. Three hundred and fifty bucks! Not bad for a week of fun.
Wayne M. Davies is author of 3 tax-slashing eBooks for small business owners and the self-employed. For a free copy of Wayne’s 25-page report, “How To Instantly Double Your Deductions” visit http://www.YouSaveOnTaxes.com