Using Credit Cards for Tax Deductions

If you use your credit card to buy something for your business or to make a charitable contribution, when can you deduct the cost on your tax return? Say you buy a business computer on December 15, 2016 with your american express card but don't pay the amex bill until January. You can deduct the cost of the computer on your 2016 tax return. It is the date charged that governs not the date paid when you use a credit card.

Form 1099 Penalties

Businesses are required to send 1099 forms to independent contractors who perform services for them where the payments are at least $600 during a calendar year. Payments to corporations are generally exempt from 1099 reporting except for payments to attorneys. There are also questions now on business tax returns asking if all required 1099 forms will be filed. The IRS encourages businesses to file 1099 forms by big penalties of $250 per failure and double that for intentional disregard. Filing the 1099 forms late within 30 days will just get you a reduced penalty of $50 per failure. The due date for 2016 1099 forms to be sent to the IRS is 1/31/2017 which is a month earlier than 2015 1099 forms. Before you do business with an independent contractor, you should have them fill out a form W-9 to get their federal ID #.

2017 Tax Changes

A few of the more significant changes are listed below:

1. The government filing dates of  W-2's and 1099's have been moved up a month to January 31.
2. Partnership returns are now due a month earlier on March 15.
3. Tax refunds for those claiming the earned income tax credit and the child tax credit will be delayed until February 15 as an anti fraud move.
4. The due date for foreign account reporting has been moved up to April 15 from June 30.
5. Estate tax returns must report the fair market value at death of assets passing to beneficiaries to both the IRS and beneficiaries. This is to make sure that beneficiaries use the correct basis when reporting sales of inherited assets.

How Long Should You Keep Tax Records?

My advice is to keep tax returns forever but only keep the underlying supporting records such as 1099's, bank statements, and other documents for the current year and the three prior years because of the three year statute of limitations. In case of suspected fraud the IRS can go back as far as they want however. Keep closing statements for real estate transactions until the property is sold and then follow the above tax return supporting documents rule. Only the most recent monthly, quarterly and annual brokerage statements need to be kept in your files. This policy should help you keep your storage requirements to a minimum but yet support your tax return in case of audit or tax notice.

Tax Organizers for 2016

Soon you will be receiving a tax organizer from me for 2016. It is very helpful to me if you fill out the organizer and provide your 2016 tax information. Prior year amounts are on the organizer to help guide you. The questions bring up special circumstances that may affect your return. I also ask for any documents that are sent to the IRS such as 1099's so that I have a record of what was reported in case of tax notices or audits. If you provide me with the tax documents, you do not need to also list the amounts in the organizer which may save you time. I hope you will see the tax organizer as an efficient means of communication with me.