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Supporting a Relative? You May be Entitled to Tax Breaks

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Supporting your financially distressed relative is a commendable act that can also result in significant tax savings. If the recipient meets all of the criteria required to be deemed a “qualified relative”, you can benefit in several ways. First of all, the qualified relative can be claimed as a dependent and you can therefore take his personal exemption ($3,750 in 2011) on your return. Another benefit is that you can add his medical expenses to yours for the medical expense itemized deduction. This is especially important for those whose medical expenses do not exceed the 7.5% of AGI (Adjusted Gross Income) minimum threshold to deduct medical expenses. Even if you don’t itemize, you can still benefit by filing as head of household instead of as single, resulting in a much greater standard deduction (in 2011 the standard deduction was $5,800 for single and $8,500 for head of household). The criteria to be a “qualified relative” are as follows: [Read more…] about Supporting a Relative? You May be Entitled to Tax Breaks

How Long To Retain Financial Records

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 Now that tax season is out of the way, you’re probably left with an intimidating stack of documents wondering “How long do I have to hang on to this stuff?” To shed light on this common issue, here’s a rundown on the essentials you need to know.

 

Tax Records

Supporting documents, such as 1099’s, W-2’s, receipts for charitable contributions, etc. should be kept for 4 years after the return was filed. For example, the documents for your 2011 return filed April 17, 2012 should be retained until April 16, 2016. If you will file on extension by October 15, 2012, you should hold on to your documents until October 14, 2016. Note that if your 1099 is attached to a brokerage statement that shows evidence of the purchase cost of a financial asset it’s is critical to hold onto the statement until you dispose of that asset.  

As for the tax returns themselves, it’s usually a good idea to save them forever. They may be needed for Medicaid, immigration, pension and other purposes. They may also contain useful data in filing future returns. At a minimum we recommend retaining them for 10 years. [Read more…] about How Long To Retain Financial Records

Got An IRA? Here’s a Tip That Can Save You NJ Income Taxes

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IRA Distributions: Federal VS NJ

Contributing to a traditional IRA reduces your federal income and, as a result, when you take a distribution down the road it’s fully taxable. While the distribution is fully taxed on the federal level because of this previous tax benefit, what many overlook is the fact that the distribution is not necessarily fully taxable to New Jersey. When the contributions to the traditional IRA were made, they were not deductible for NJ. [Read more…] about Got An IRA? Here’s a Tip That Can Save You NJ Income Taxes

New Additions to IRS “Fresh Start” Program

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The IRS “Fresh Start” initiative was introduced last year as a response to the inability of struggling taxpayers to pay their taxes. In 2012, the IRS is significantly expanding the program with two major additions.

First, there will be a new “failure-to-pay penalty relief” for two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year
  • Self-employed individuals who experienced a 25 percent or greater reduction of business income in 2011 due to the economy [Read more…] about New Additions to IRS “Fresh Start” Program

Do I Have To Report My Foreign Inheritance?

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While the recent IRS crackdown has increased awareness of filing requirements for foreign assets and income, the requirements regarding foreign inheritances are much less well known. As a rule, there is never a recipient income tax liability on foreign inheritances.  Estate tax (for which the estate is liable), is a different matter. If the person leaving the foreign inheritance is a U.S. citizen then it would be subject to estate tax. If not, there is no estate tax liability. [Read more…] about Do I Have To Report My Foreign Inheritance?