We live and we learn. Mostly we learn by making mistakes. However, no one wants to learn about taxes that way. Instead, you can learn from these commonly asked tax questions.
1. How long do I need to keep tax records?
According to the IRS, keep your tax records for three years. That is the period of time they usually are able to examine during an audit. Unless the IRS suspects fraud. Then they can look back seven years. Maxine at The Balance Sheet says to keep business returns for up to FIVE years and personal returns up to SEVEN.
2. Are my Social Security benefits taxable?
Possibly. Especially if a substantial amount of your income is from other sources. If this is your only source of income or the major source, then your benefits probably are not taxable.
If you are filing as an individual (either single or married filing separately) and your combined income is between $25,000 and $34,000, up to 50% of your SS benefits may be taxed. If your combined income is more than $34,000, up to 85% of your SS benefits may be taxed.
If you file married filing jointly and your combined income is between $32,000 and $44,000, up to 50% of your SS benefits may be taxed. If your combined income is more than $44,000, up to 85% of your SS benefits may be taxed.
The Social Security Administration defines your combined income as:
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your “combined income“
3. Should I hire a tax consultant to prepare my taxes?
The answer may be yes if the following statements are true about you:
A. You are not a numbers person.
If you have struggled every year to file your tax return, then yes you should. If computing the numbers makes you worry you might be getting in over your head, turn this over to someone who enjoys the work. You could also save yourself from getting into trouble.
B. You got married, divorced, had a child, or lost a spouse.
If this is true for you, then you may need help finding the best filing status for you. Your tax situation is probably different from your friends, neighbors, and work colleagues. You will need a professional to help you sort it. Also, some credits and deductions expire.
C. You started a business.
This takes expert knowledge. Someone needs to teach you how to swim before you jump into the water alone. It is not very much like filing your personal tax return.
These are only three tax questions answered. To learn more, consult a professional tax consultant. In West Palm Beach, Florida, you can call The Balance Sheet at (561) 501-3080 or visit us at www.taxaccountingbookkeeping.com.