2022 TAX RETURN RECORD KEEPING

 

So, how hard was it to gather together all of your 2021 tax “stuff” to give to your tax preparer? 

It is important that you have documentation for all of the income, deductions and credits reported and claimed on your federal and state tax return.  And, of course, you do not want to forget or miss a qualified deduction or credit.  You must keep good records throughout the year.

I have created a 2022 GUIDE TO TAX RETURN RECORDKEEPING to help you in gathering and organizing your 2022 tax “stuff” and help you to pay the absolute least federal income tax possible for 2022.

My guide contains detailed text covering what is taxable and deductible and what information and documentation you will need to properly prepare your 2022 tax return, and forms, schedules and worksheets for compiling and identifying the documentation you will need to provide to your professional tax preparer in 2023.  It discusses in detail –

·         MY BEST TAX ADVICE

·         WHAT TO GIVE YOUR PREPARER

·         WHO MUST FILE A 2022 TAX RETURN

·         FILING STATUS

·         DEPENDENTS AND EXEMPTIONS

·         INFORMATION RETURNS

·         INVESTMENT SALES

·         2022 CONTRIBUTION LIMITS FOR RETIREMENT PLANS

·         REPORTING GAMBLING INCOME

·         ADJUSTMENTS TO INCOME

·         ITEMIZED DEDUCTIONS

·         DEDUCTIBLE RENTAL EXPENSES

·         CHILD CARE EXPENSES

·         ESTIMATED TAXES

·         HOW LONG MUST I KEEP MY TAX RECORDS

·         YEAR-END TAX PLANNING

The cost of the Guide is only $16.45 - postage included.

Send your check or money order for $16.45 payable to Taxes and Accounting, Inc. and your postal mailing address to -

TAXES AND ACCOUNTING, INC
2022 GUIDE TO TAX RETURN RECORDKEEPING
POST OFFICE BOX A
HAWLEY PA 18428

TTFN

A GREAT CHRISTMAS GIFT IDEA

 

Taxpayers are required to keep good contemporaneous records and documentation of all items of income reported and all deductions and credits claimed on their income tax return in the manner prescribed by Congress, the IRS and the US Tax Code.

As I recently reported, the IRS has released most of the inflation-adjusted tax rates, and numbers for deductions and credits for tax year 2022 – for returns to be filed in the spring of 2023.  I am currently working on compiling my 2022 GUIDE TO TAX RETURN RECORDKEEPING.  This guide will help you in gathering and organizing your 2022 tax “stuff” and help you to pay the absolute least federal income tax possible for 2022.

This guide will make a great Christmas gift for family, friends and for yourself!

I am waiting for the IRS to announce the 2022 Standard Mileage Allowance rates and for Congress to pass the final version of the Build Back Better legislation, which should contain several tax changes effective for 2022. 

My guide will contain detailed text covering what is taxable and deductible and what information and documentation you will need to properly prepare your 2022 tax return, and forms, schedules and worksheets for compiling and identifying the documentation you will need to provide to your professional tax preparer in 2023.  It discusses in detail –

·         MY BEST TAX ADVICE

·         WHAT TO GIVE YOUR PREPARER

·         WHO MUST FILE A 2022 TAX RETURN

·         FILING STATUS

·         DEPENDENTS AND EXEMPTIONS

·         INFORMATION RETURNS

·         INVESTMENT SALES

·         2022 CONTRIBUTION LIMITS FOR RETIREMENT PLANS

·         REPORTING GAMBLING INCOME

·         ADJUSTMENTS TO INCOME

·         ITEMIZED DEDUCTIONS

·         DEDUCTIBLE RENTAL EXPENSES

·         CHILD CARE EXPENSES

·         ESTIMATED TAXES

·         HOW LONG MUST I KEEP MY TAX RECORDS

·         YEAR-END TAX PLANNING

The cost of the Guide will be only $16.45 - postage included.  However, if you order the Guide now, before I “go to press”, I will provide a 20% “pre-publication” discount.  So, the cost will be only $13.15! 

Your order must be postmarked before I publish the final version.

Send your check or money order for $13.10, payable to Taxes and Accounting, Inc. and your postal mailing address to -

TAXES AND ACCOUNTING, INC

2022 GUIDE TO TAX RETURN RECORDKEEPING PREPUB OFFER

POST OFFICE BOX A

HAWLEY PA 18428

TTFN

DOCUMENTING YOUR INCOME AND DEDUCTIONS

 

I expect by now you have prepared and submitted your 2020 federal and state tax returns and are waiting, patiently, for your refunds. 

Did you find it difficult to compile all the necessary 2020 information and documentation to give to your tax preparer?  The more organized you are at tax time the more likely you will be able to take full advantage of all deductions, credits and tax-saving strategies available. And the more organized you are the lower your tax preparation fee.

I have created the 2021 GUIDE TO TAX RETURN RECORDKEEPING to help you in gathering and organizing your 2021 tax “stuff” and help you to pay the absolute least federal income tax possible for 2021.

My guide contains detailed text covering what is taxable and deductible and what information and documentation you will need to properly prepare your 2021 tax return, and forms, schedules and worksheets for compiling and identifying the documentation you will need to provide to your professional tax preparer in 2022.  It discusses in detail –

·         MY BEST TAX ADVICE

·         WHAT TO GIVE YOUR PREPARER

·         WHO MUST FILE A 2021 TAX RETURN

·         FILING STATUS

·         DEPENDENTS AND EXEMPTIONS

·         INFORMATION RETURNS

·         INVESTMENT SALES

·         2021 CONTRIBUTION LIMITS FOR RETIREMENT PLANS

·         REPORTING GAMBLING INCOME

·         ADJUSTMENTS TO INCOME

·         ITEMIZED DEDUCTIONS 

·         DEDUCTIBLE RENTAL EXPENSES

·         CHILD CARE EXPENSES

·         ESTIMATED TAXES

·         HOW LONG MUST I KEEP MY TAX RECORDS

·         YEAR-END TAX PLANNING

The cost of the Guide is only $10.95 sent as an email attachment – the text in pdf format and the forms, schedules and worksheets in Word format.  A print version sent via postal mail is also available for $15.45.

Send your check or money order for $10.95 or $15.45, payable to Taxes and Accounting, Inc, to -

TAXES AND ACCOUNTING, INC

2021 GUIDE TO TAX RETURN RECORDKEEPING    

POST OFFICE BOX A

HAWLEY PA 18428

TTFN 

A TRULY PRACTICAL CHRISTMAS GIFT – MY 2021 TAX RETURN ORGANIZER

 

It is time to begin Christmas shopping.  Here is a truly practical gift suggestion – for family and friends, or for yourself.

Taxpayers are required to keep good, contemporaneous records of all items of income and deduction in the manner prescribed by the IRS and the Tax Code.  For many years now I have been wanting to create a comprehensive Tax Return Organizer for my clients, readers and the general public.  Being stuck at home I have finally done it!

My 2021 INCOME TAX ORGANIZER, created for the federal income tax return (Form 1040 or Form 1040-SR), will help you keep track of all your income and deductions, and gather and organize the information you will need to provide to your professional tax preparer in 2022. 

The Organizer, which comes in an expandable binder, contains -

* detailed text covering what is taxable and deductible and what information and documentation you will need to properly prepared your 2021 tax return,

* forms, schedules and worksheets for compiling and identifying the needed information, and

* pockets for you to keep statements, bills, receipts, and other documentation during the year by category.   

The text (current as of November 2020) covers –

• MY BEST TAX ADVICE·       
  
• WHAT TO GIVE YOUR PREPARER
• WHO MUST FILE A 2021 TAX RETURN
• FILING STATUS
• DEPENDENTS AND EXEMPTIONS
• INFORMATION RETURNS
• INVESTMENT SALES
• 2021 CONTRIBUTION LIMITS FOR TAX-DEFERRED RETIREMENT PLANS
• REPORTING GAMBLING INCOME
•  ADJUSTMENTS TO INCOME
• ITEMIZED DEDUCTIONS (with specific details for each category)
•   DEDUCTIBLE RENTAL EXPENSES
•  CHILD CARE EXPENSES
•  ESTIMATED TAXES
• HOW LONG MUST I KEEP MY TAX RECORDS
• YEAR-END TAX PLANNING

The cost of the Organizer material is only $44.95 (includes shipping via Priority Mail).

Send your check or money order for $44.95, payable to Taxes and Accounting, Inc, and your postal mailing address to -

TAXES AND ACCOUNTING, INC

2021 TAX RETURN ORGANIZER

POST OFFICE BOX A

HAWLEY PA 18428 

TTFN

THE GOP TAX ACT AND RECORDKEEPING

Now that the tax filing season is over it is time to think about your 2018 return.

The GOP Tax Act – aka the Tax Cuts and Jobs Act – drastically changes the US Tax Code, and will affect every single 1040, and 1040A, filed from 2018 through 2025 (or until new tax legislation is passed).

Traditional recordkeeping for tax returns no longer applies.  Here is what you do and do not need to keep track of during the year.

What you no longer need to keep records of (at least for 1040 purposes) –

* Job-related moving expenses.  Except for active duty members of the Armed Forces who move pursuant to a military order and incident to a permanent change of station.

* Casualty and theft losses.  Unless they are the result of a Presidentially-declared natural disaster.

* Unreimbursed employee business expenses.  This includes job-related mileage, travel and entertainment, continuing education, dues and memberships, subscriptions and publications, tools and supplies, uniforms and work clothes, and job seeking expenses.  Except if you are a grade K – 12 teacher, instructor, counselor, principal, or classroom aide who works at least 900 hours during the year, a “qualified performing artist”, or a National Guard member or Armed Forces reservist who must travel more than 100 miles away from home and stay overnight to fulfill his or her training and service commitment.  These individuals can still claim an “adjustment to income” for some of their expenses.

* Investment expenses, such as investment advisory fees, investment charts, newsletters and publications, and safe deposit box rental fees.

* Fees and expenses related to preparing your tax returns and responding to a federal or state audit of a tax return.

What you do need to continue to keep records of –

* Unreimbursed medical expenses, including mileage and travel to and from medical care.

* Property taxes and state and local income or sales taxes paid.

* Interest paid on home mortgages for up to two personal properties.  While it has always been important to keep separate track of interest paid on acquisition debt and interest paid on home equity debt, this is more important than ever under the new law.  And this must be done going back to the original purchase mortgage of a property and include all subsequent refinancing and borrowing.  Interest on home equity borrowing is no longer deductible, and there is no “grandfathering” of any home equity interest.  I wrote a special report that will help you with this task – click here for more information.  

* Investment interest.

* Gambling losses.

I am currently working on an e-book that discusses in detail how the new GOP Tax Act will affect 1010 filers and include tax planning strategies to help you take full advantage of the new laws.  I will let you know when it becomes available.

TTFN

SIMPLIFICATION AND COMPLEXITY FOR TAXPAYERS

While the GOP Tax Act adds much unnecessary complexity to the Tax Code, it does make some things simpler.

By eliminating the miscellaneous deductions subject to the 2% of AGI limitation, taxpayer recordkeeping is simplified.  Employees who are not reimbursed for their job-related expenses under an accountable plan will no longer need to keep track of business mileage, business meals and entertaining, and other employee business expenses.  And there is no longer the need to keep track of job-seeking expenses, including travel to interviews, or educational expenses to maintain or improve skills required in your current trade or business.  Investment and tax preparation costs are no longer deductible, so no longer a need to keep track of these expenses.  Of course, this simplification comes at a cost – the loss of a potentially large tax deduction.

The Act changes tax planning considerations, and makes year-end planning simpler.

To begin, with the increased Standard Deduction, unfortunately made much less attractive for taxpayers without dependents due to the loss of the personal exemption deduction, there will be less taxpayers who will benefit from itemizing.

For those who could be able to benefit from itemizing –

* It will still be possible to “bunch” medical expenses and charitable contributions – that is claim additional deductions in a year when you may be able to itemize, so that you itemize every other year.  The use of a charitable donor-advised fund account and contributions of appreciated stock at year-end will still apply.  And during the year, the Qualified Charitable Distribution (click here) is an even more attractive strategy for those age 70½ and over.

* With the limitation of the itemized deduction for combined property and state and local income or sales taxes to $10,000, there is little that can be done here, other than to attempt to maximize the deduction.  If the $10,000 maximum will not be already met, it is still a good idea to make any 4^th quarter state estimated tax payment in December instead of January of the next year.  And pre-payment, if possible, of property taxes can be used to bunch deductions. 

* One can still make a 13^th mortgage payment to bunch the interest deduction.

* The total elimination of job related, investment, and tax preparation expenses, and other miscellaneous deductions subject to the 2% of AGI exclusion, makes these deductions no longer an issue, so there is nothing more than can be done.

* And the changes to the dreaded Alternative Minimum Tax (AMT) will create less victims, so AMT considerations will no longer apply for most.

While the new limitations on the mortgage interest deduction simplifies the Tax Code, it greatly complicates recordkeeping for taxpayers and potentially for tax professionals.  Under the GOP Tax Act interest on home equity debt, regardless of the amount of the debt principal, is no longer deductible.  Period.  There is grandfathering of existing acquisition debt interest rules – but there is NO grandfathering of existing home equity debt.  Taxpayers will need to separately track acquisition and home equity debt going forward, and going back to day one on all current mortgage debt! 

I do believe in the original House version of the bill all existing mortgage debt was “grandfathered” – including home equity debt.  While I can understand, and agree with, the philosophy of limiting deductible mortgage interest to acquisition debt, for practicality sake I wish that existing home equity debt had been included in the grandfathering.

Taxpayers have always been required to keep separate track of acquisition and home equity debt, but few actually did due to the allowance of a deduction for interest on up to $100,000 of home equity debt.  This is now something that MUST be done, especially for taxpayers with existing mortgages.

Even if a homeowner never incurred any separate home equity debt – never took out a separate home equity loan or opened a home equity line of credit – if an original acquisition mortgage was ever refinanced they may have home equity debt.  The additional closing costs of each refinance that were added to the principal of the refinanced mortgage loan is home equity debt.  The only way you would avoid home equity debt in such a situation is if you literally refinanced only the principal from each old mortgage and paid all closing costs in cash.

For example - you purchased a home in 2011.  You have had only one mortgage, from the original purchase, and no home equity debt.  You refinanced the original mortgage in 2015 to get a better rate.  The principal balance on the original mortgage was $197,374.  The principal balance of the refinanced mortgage was $200,000.  You did not take any money “out”, and paid a little over $1,000 at the closing.  The difference is the closing costs for title insurance, inspections, fees, etc. etc.  You have have acquisition debt of $197,374 and home equity debt of $2,626.   

I will be rewriting my Mortgage Interest Guide, which includes worksheets for keeping track of mortgage debt and a detailed example of how to use them, to reflect the new rules for 2018 and beyond.  It is only $2.00, delivered as a pdf email attachment.  I will let you know here when it is available.

So, as you can see, not only has the Tax Code been drastically changed by the new GOP Tax Act, but also the year-round recordkeeping requirements of taxpayers.

TTFN

WHAT YOU SHOULD KNOW AS YOU BEGIN THE NEW YEAR

Now that the idiot in the White House has officially signed the Tax Cuts and Jobs Act (officially, it appears, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), let me discuss some of what this means for taxpayers for 2018.

First - contrary to what Donald T Rump has said (a statement that must be made all too often today, considering that idiot Trump is a serial liar) – the GOP Tax Act did not repeal Obamacare!  What it did was repeal the “individual mandate” – the requirement that every American must purchase or obtain “adequate” health insurance for every member of his or her household for the entire year.  And it repealed the penalty assessed on the tax return for not having adequate full-year coverage.  But this is effective with tax year 2019.  The individual mandate and the penalty is still in effect for tax year 2018.  You will be penalized on your 2018 Form 1040 if every member of your household does not have adequate health insurance coverage for all of 2018 and you do not qualify for a statutory exemption.  The penalty does not disappear until 2019.

When it comes to recordkeeping –

(1) It is still important to keep track of medical expenses, and medical mileage, for 2018.  Perhaps even more so, as the AGI exclusion is returned to 7½% (down from 10%) for all taxpayers, regardless of age, for 2018 (and 2017) only. 

NJ taxpayers must keep track of medical expenses, whether or not they have been able to claim a federal deduction, because you can deduct unreimbursed medical expenses on the NJ-1040 if the total exceeds only 2% of your “NJ Gross Income”.  And you can deduct health insurance premiums deducted from your paycheck on the NJ-1040.  While these payments may be considered “pre-tax” for the federal return, they are NOT pre-tax when it comes to reporting NJ state wages.  And NJ taxpayers do not have to reduce the medical deduction claimed on NJ-1040 by reimbursements and payments from employer-sponsored Flexible Spending Accounts (FSA) or Health Savings Accounts (HSA), for the same reason.

(2) Under the GOP Tax Act, the following expenses are no longer deductible on Schedule A for tax years 2018 through 2025 -

* Job-related moving expenses, except for members of the Armed Forces who move due to a military order.   And employer moving expense reimbursements, again except for military personnel, are no longer excluded from income and will be included in taxable wages reported on Box 1 of your W-2.

* Investment interest

* Unreimbursed employee expenses (including union and professional dues, continuing professional education, job-related subscriptions and publications, home office expenses, uniform expenses, business use of your car, travel expenses, meals and entertainment expenses, license fees, tools used for work, and job search expenses) – except for the $250 adjustment to income for the unreimbursed expenses of K-12 educators.

* Tax preparation and advice costs and expenses relating to tax audits

* Investment fees and expenses, including safe deposit box rental fees

* Legal expenses for the collection or protection of income.

* Hobby expenses

So, unless you need to do so for employer reimbursements, you no longer need to keep track of business expenses or mileage, or the other items listed above, for 2018.  Of course, business expenses are still fully deductible by self-employed sole proprietors who file a Schedule C or C-EZ and for farmers filing a Schedule F. 

For business entities, including Schedule C filers, business “entertaining” – “entertainment, amusement, or recreation that is directly related to (or, in certain cases, associated with) the active conduct of the taxpayer’s trade or business” – is no longer deductible.  Under current law businesses can deduct 50% of these expenses.  What this means is that you can no longer deduct the cost of taking a client to the theatre or a sporting event following a legitimate business discussion.  Perhaps the cost of the client’s ticket could qualify as a business “gift”, with the deduction limited to $25.00.

(3) Beginning in 2018 home equity interest is no longer deductible, regardless of when the loan was initiated.  Period.  There is no grandfathering of existing home equity debt interest.  It is truly more important than ever to keep separate track of acquisition and home equity debt, going back to when you first incurred home equity debt!  Most taxpayers don’t do this – but they had better start doing this beginning in 2018.  We currently do not know if or how the Form 1098 will change for tax year 2018 to reflect the new law. 

I am in the process of rewriting my “Mortgage Interest Guide” to reflect the new law, which includes worksheets and instructions for doing this.  Click here for more information on this report.

Just so you know, home equity loan interest on up to $100,000 of principle, and the other expenses discussed above, is still deductible for 2017. 

So, some taxpayers will have less work related to tax recordkeeping during the year for 2018 – 2025, and some will have more.

Any questions?

TTFN

ONE REASON YOU SHOULD KEEP COPIES OF YOUR TAX RETURNS FOREVER

One of the most frequently asked questions I get from clients and readers is “How long should I keep my tax returns?”.

I have always said you should keep the paper copy of your tax returns (Form 1040 or 1040A, and corresponding state returns, plus all supporting Schedules, Forms, and worksheets) forever. This provides a permanent record of your financial history. You never know when the information on a prior year’s tax return will come in handy for a variety of tax or financial reasons, or just to satisfy personal curiosity. 

You should also keep copies of all W-2s forever, and, as fellow tax blogger Russ Fox of TAXABLE TALK has suggested, copies of proof of filing and proof of mailing returns.

This advice applies to tax professionals as well.  As a tax preparer I am required by law to keep on file copies of tax returns I have prepared for 3 years.  But I keep copies of every return I have prepared for all current clients.  For some clients I have copies of their returns going back to the early 1970s.

I recently came across an excellent example of the benefit of keeping copies forever.

A long-time client inherited from my mentor, a lifelong NJ resident, is beginning to take annual Required Minimum Distributions from his IRA accounts.  The source of the monies in his IRA accounts includes deductible contributions to Keogh and SEP accounts, eventually rolled over into IRAs, deductible IRA contributions (during the 5 years in the 1980s when everyone with earned income could contribute to an IRA regardless of the amount of their Adjusted Gross Income) and rollovers of employer pension plans partially funded by pre-tax employee contributions.

The RMDs will be fully taxable on the federal Form 1040, as all of his contributions to the various sources were either deductible or “pre-tax”.  However his federally deductible contributions to Keogh, SEP and IRA accounts were not deductible on the NJ-1040, and are “after-tax” for NJ state income tax purposes.  So he has a “basis” in his current IRA accounts for NJ state tax, and part of his RMDs will be non-taxable return of after-tax contributions on the NJ-1040.  The greater the total of employee after-tax contributions the greater the amount of the RMD that will be tax-free to NJ. 

I have copies of this client’s tax returns going back to 1984, so I can add up the amount of his federally deductible contributions to Keogh, SEP, and IRA accounts from 1984 through his retirement in the late 2000s.  However he was making contributions to these accounts in years before 1984. 

I can guess the deductible IRA contributions (everyone with earned income could make IRA contributions from 1982-1986 – so I can assume he made the maximum contribution in 1982 and 1983 based on the fact that he did so in 1984-1986).  But Keogh contributions are based on the amount of net self-employment income, and I would need the actual returns from before 1984 to get the correct numbers.

If the client had kept copies of all his federal tax returns forever I could get the needed information from him.

So, in this case, information from tax returns going back to the late 1970s would help reduce the tax liability on current state tax returns.

TTFN