Posts Tagged House

A Taxpayer’s Personalized Receipt for Paid Taxes

Posted on June 10, 2011 | Tax Studies.

Taxation is a process that has been in operation for centuries now, and most urbanized societies have some form of taxation. However, one universal principal of taxation is that the taxpayers have an obligation to pay taxes but no real ability to directly determine or dictate the usage of their taxes paid. The only way taxpayers have control of the taxes is by representation through democratic voting. However, the United States is now seeking to take taxation to a whole new democratic platform. There have been proposals in Congress in the recent past to require the government to provide itemized receipts to the taxpayer for the taxes they pay. This means that the taxpayer will know exactly how his or her taxes are used and appropriated. This move is set to make the government more accountable to the taxpayer and build taxpayer awareness and involvement in the tax process.

The White House Taxpayer Receipt Calculator

There have been many government and tax watchdog organizations that have come up with automated calculators to break down the tax paid by different taxpayers into the how the tax money was spent. However, the calculator that has drawn most reaction is the White House Taxpayer Receipt Calculator because the White House is seeking to be more accountable to the taxpayer by making him or her aware of how the tax paid will be used. The calculator is available at the whitehouse.gov website. To get a breakdown of one’s tax usage, one needs to input the Medicare, Social Security, and Income taxes paid in the last tax year. This is the amount indicated in box 4 and 6 of the W-2s and the tax amount on the Form 1040, 1040A, or 1040EZ, depending on the form filled out by the taxpayer.

The calculator breaks down the amount paid into 14 spending categories. 8 categories have a final figure while the others have the amounts further broken into subcategories. Percentage formulas are used to present an indicative budget of how the dollars paid by the taxpayer will be spent. The Defense category takes up the largest portion at 26.3%, the Healthcare program at 24.3%, and household payouts, including unemployment benefits, tax breaks, tax credits, tax reliefs, and retirement programs, take up 21.9%. One of the categories drawing quite some attention is the “Additional Government Programs” category that appears to be more like a “miscellaneous” item with no further details. The category makes up for 2.4% of the taxes paid. Critics are seeking to get further details for this category.

Bill to Make Receipt Law

Beyond the White House calculator, that seems more of a fun tool to help taxpayers become more aware of the usage of his or her taxes, some members of Congress are now seeking to have the taxpayers receipt as part of the law. Representatives Mike Quigley, Dave Reichert, and Aaron Schock have introduced a bill H.R. 1527 to have the taxpayers receipt as part of law. In the same light, the Senators Bill Nelson (D-Fla) and Scott Brown (R-Mass), both members of the Senate Finance Committee have introduced a bipartisan bill, S. 437- The Taxpayer Receipt Act, which also seeks to make the taxpayers receipt, a law. As lawmakers push the agenda of the taxpayers receipt, the public at large awaits to see if the U.S. will take up this new milestone in democracy to provide personalized accountability for tax expenditure.

Important Proof Documentation for Your Tax Returns

Posted on June 2, 2011 | Tax Studies.

Now that the tax return period is over, at least for those who did not file for an extension, there is always the temptation to push away all the tax preparation documentation and move on into new things. However, before you toss aside your tax documentation, you need to know that the IRS expects you to file your documents for at least 3 years. This is because the IRS can audit your returns up to three years from when you filed them.

However, if you had understated you income in any given year by over 25%, the IRS can audit you after 6 years of filing such an “erroneous” return. Finally, if you had submitted a fraudulent tax return or did not file a tax return at all, the IRS can audit you indefinitely.

Therefore, even if you filed your tax returns correctly, you should still keep your tax return documentation for at least 3 years, just in case. However, note that there are many States that require taxpayers to keep tax documentation for at least four years. Therefore, to be safe, it would be best to keep your tax support documentation for at least 4 years after filing returns.

However, there are still other documentations that you may need to keep for a longer period for various reasons:

  • If you made a capital gain loss and you need to deduct the loss against future taxable income, then you will need to keep the loss documentation for each year you deduct the losses and therefore, you will need the loss documentation at least for 4 years after the year that you made such deductions.
  • If you made major renovations to your house, you will need to keep the receipts and other adjustments documentation together with your records for the purchase of the house until you sell the house. This is because you will need the support documentation when calculating the capital gain tax on the sale of the house.
  • If you sold your property under a 1031 exchange, then the sales agreement support documentation will be required as long as you are receiving the sale exchange deposits. You should keep the documentation for at least 4 years after you receive your final deposit and had wrapped up the sale.
  • If you had any carry forward funds such as business losses carried forward, deferred tax carried forward from sale of a house, and a passive loss carried forward, you will need the relevant documentation until you have exhausted the carry forward and 4 years thereafter.
  • If you are disabled and take credits on taxes because of your disability, then you will need to keep the record from a medical practitioner that stated that you are disabled to keep evidence of the date you were officially declared disabled.
  • If you make retirement contributions, keep the contribution statements, such as the IRS Form 8606, Form 5498, and Form 1099-R, until you receive the final distribution from your retirement fund.
  • At times, you may be required to take photographs as support documentation. This comes to play when you have a home office and when claiming casualty or theft loss deductions.

For the rest of the support documentation such as paystubs, copies of your tax returns, fund distribution forms, investment records, bank statements, medical bills, and any other support receipts, you can file them for the four year period. When you can safely establish that you will not require them again, you can and should destroy the documentation (an option is to shred them) to protect your private information. However, it is always advisable to keep an electronic file of all your documents for future reference.