+          You may receive a notice if the IRS requests payment, notifying of account changes, or requesting additional information. The notice will cover a specified issue.

+         Your letter should provide specific instructions about what action needs to be taken.

+         If you receive a correction notice; make sure to review and compare. If you are in agreement with the notice, no further action is needed (unless otherwise stated). 

+         If you receive a correction notice, and do not agree with the notice respond the IRS as requested and send along supporting documentation. Mail the correspondence to the IRS address shown in the upper left hand corner and allow at least 30 days for a response.

+         Most correspondence can be handled without a phone call; if you wish to call the IRS you may do so by calling the number listed on the upper right hand corner.

+         Additional tips: make sure to keep copies of all correspondence. The IRS only sends out notices via US Mail and will not correspond via email.

Made a mistake on your taxes? Received additional information? The IRS has these tips to help you amend your taxes.

1. Use form 1040X to make an amendment to an individual income tax return.

2. An amendment form cannot be e-filed; amended returns need to be filed by paper and mailed.

3. You do not have to send an amended form for mathematical errors or forgetting to attach tax forms (W-2s or schedules). The IRS will make the adjustments and send information requesting such documents.

4. Generally you should file the amended 1040X within three years from the file date or two years from the date you paid the tax (whichever is later).

5. If you are amending more than one tax return; prepare a 1040X for each return and mail in separate envelopes to the appropriate IRS address.

6. If changes involve another schedule or form; you must attached the revised schedule to the amended form.

7. If you are filing to claim an additional refund, you must wait until you have received the original refund before filing an amended form.

8. If you owe additional 2011 tax, file Form 1040X and pay the tax before the due date to limit interest and penalty charges that could accrue on your account. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Information on amended tax returns, visit the IRS website  (www.irs.gov) or visit the following links:

• For more Form 1040X, Amended U.S. Individual Income Tax Return (PDF 110K)
• Form 1040X Instructions (PDF 45K)
• Tax Topic 308 — Amended Returns

Keeping organized records of your charitable contributions throughout the year will make things easier when you go to prepare your tax return next year.  The Internal Revenue Service has compiled nine tips that you should keep in mind when contributing to charity:

1. In order to be deductible, charitable contributions must be made to qualified organizations. An online version of IRS Publication 78, which provides a list of organizations eligible to receive tax-deductible charitable contributions, is available at www.irs.gov/charities under the “Search for Charities” tab. Remember, generally contributions to political organizations are not deductible!

2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. Generally, you can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

5. Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution as well as the name of the organization.

6. Only contributions actually made during the tax year are deductible. For example, if you pledge $500 in September but only pay the charity $200 by Dec. 31, your deduction for the current year is $200.

7. Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

8. If your contribution is $250 or more, you must have a written acknowledgment from the organization. The acknowledgment must include the cash amount, and state whether the organization provided any goods or services in exchange for the gift. If you donate property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 (this also means that the total of your non-cash donations are more than $500) or more you must complete Form 8283, Noncash Charitable Contributions, and attach it to your tax return. If you claim a deduction for a contribution of noncash property worth more than $5,000, generally an appraisal must be obtained, and Section B of Form 8283 must be completed and filed with your return.

9. Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.  Check with the organizations website and the IRS website mentioned in tip 1 to verify the organization’s status.

If you’re like many Americans, you’ve filed your income tax returns by now and put a copy of the tax returns in a safe place.  But what about the tax documents that support income and expenses on your return?  Ever wonder what you should keep and for how long? 

IRS Publication 552, “Recordkeeping for Individuals”, provides a table of basic records to keep for supporting income and expenses.  Key documents to keep with your tax file include Form W-2, Form 1099, Schedule  K-1, brokerage statements and written communication from qualified charities.

If you’ve ever been audited and didn’t keep good records with your tax returns, then you know what a nightmare it is to go back and obtain canceled checks, invoices, and bank statements to support income and expenses from three years ago.    Now is the time to gather all of your tax documentation and keep it with your tax returns.  Doing so will provide you with some relief years later when you receive the dreaded letter from the IRS stating your charitable contribution deduction is being audited for the 2011 tax year.  Incidentally, there are different recordkeeping requirements for charitable contributions depending on whether the contribution is cash, non-cash, or out-of-pocket expenses.  For example, cash contributions of $250 or more require substantiation including written acknowledgement from the qualified organization.  The written acknowledgement must include the amount of the cash contribution, the date of the contribution, and a description and good faith estimate of the value of any goods or services contributed.  You should obtain this written communication by the earlier of the date you file your return for the year you make the contribution or the due date, including extensions, for filing the return.

 If your tax documents are collecting dust on your kitchen counter, take the time now to go through them and make sure you have consolidated the required documentation for each item of income and expense claimed on your return.   Include both the records you provided to your tax preparer and those you kept at home in your personal tax file -like receipts for medical deductions and employee business expenses.

If your tax documents are already placed in a safe place, you may be wondering how long you need to retain these documents.  The general rule of thumb is three years from date you file your return (if you filed your return before the due date, the three-year period begins on the filing deadline).  The IRS has outlined situations where the record retention period is longer than three years. You can check out these situations in Table 3 of IRS Publication 552.

If you have any specific questions on tax record retention, please contact Kristy McElroy at 847-733-7195 or kmcelroy@bkl-cpa.com.

Now that you’ve filed your taxes, what should you keep and for how long? What can be shredded? The IRS provides some guidelines for managing your files after tax season.

+ Tax records should be kept for three years.

+ Some documents such as a home purchase and stock transitions should be kept longer.

+ Generally, the IRS does not require you to keep your records in any special manner.

+ You should file any bills, credit card receipts, checks, or proof of payments that support deductions or credits you claim on your return.

If you have questions on what should be kept, visit the IRS website (www.irs.gov) .

The full publication on record keeping can be found here.

Looking for your income tax refund? You are able to check your refund status using the IRS’s website.

Tips:

+         If you e-file, you can generally expect your refund within 10 – 21 days. The projected refund date “Where’s My Refund?” provides may change as your tax return moves through processing. Keep in mind that IRS telephone assistors will not be able to provide additional information.
+        DO NOT CALL the IRS toll-free number unless “Where’s My Refund?” specifically indicates that you should.
+       If you e-file you can check this website 72 hours after you e-file or 4 weeks after you mail the paper return.

What do you need?

+         Social Security Number
+         Filing Status (married, single, etc)
+         Exact Refund Amount

Where do you go?

Visit the IRS website (www.irs.gov)  (click on the I’m waiting for my refund tab)  or click here.

If you need to make a tax payment this year, the IRS has developed 10 tips to make sure your payment is processed and received correctly.

• Never send cash!
• If you file electronically you can file and pay in a single step authorizing electronic funds withdrawal. A tax professional can assist you with this step.
• You can make a payment via phone or online using a credit or debit card.
• You can use money orders as an alternative to checks or electronic payments. You can make a payment 24/7 by visiting the IRS website.
• If you itemize, you can deduct the convenience fee associated with paying with a credit or debit card. The deduction is subject to a 2% limit.
•  If you file via paper, do not staple the payment to your return. You may include the payment with your return.
• Make check or money order payable to “United States Treasury”.
• Information to include on your check or money order: name, address, social security number, telephone number, tax year, and form number.
• When mailing your payment include Form 10-40, Payment Voucher. Make sure to double check addresses!
• Need additional information or assistance? Call 800-829-3676 or visit the IRS at www.irs.gov.

Depending on your profession and the type of income you receive throughout the year; you may have to pay the IRS estimated taxes. Below are a few tips from the IRS to explain estimated taxes and how to pay them.

Who pays estimated tax?
If you have income from self employment, interest, alimony, prizes or awards, you may have to pay estimated tax.

When do you pay estimated income taxes?
As  a general rule you must pay estimated tax in 2012 if: you expect to owe at least $1,000 in tax after subtracting any tax withholding or credits or if you expect your withholding and credits to be less than the smaller 90% of your 2012 taxes or 100% of your 2011 tax return. Note: special rules apply for farmers, fishermen, and certain household employees or higher income taxpayers.

I am a Sole Proprietor, Partner or S Corporation shareholder, do I pay in estimated income taxes?
Generally if you fall into one of the above categories you have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

What do I owe?
To figure out your estimate tax include the following: expected gross income, taxable income, deductions and credits for the year – use the worksheet in Form 1040-ES. Accuracy is key to avoid penalties, so you may want to consult a professional.

When do I pay?
There are four due dates for estimated tax payments – the dates are generally April 15, June 15, September 15, and January 15 of the following year.

Full instructions, worksheets, and payment vouchers can be found at www.irs.gov. To read the full text article, visit the IRS website or click  here.

The Affordable Care Act was enacted on March 23, 2010. Below are some highlights corresponding to that act.

Small Business Health Care Tax Credit
New credit which helps small business and small tax-exempt organizations afford the cost of covering their employees and its specifically targeted for those with low-and moderate income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

Changes to Flexible Spending Arrangements
The cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard was effective January 1, 2011.

Health Insurance Premium Tax Credit
Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. Exchanges will operate in every state and the District of Columbia.

Health Coverage for Older Children
Health coverage for an employee’s children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Adoption Credit
The Affordable Care Act raises the maximum adoption credit to $13,360 per child, up from $13,170 in 2010 and $12,150 in 2009. The adoption tax credit is refundable for tax year 2011, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply

For the full list and detailed information on the components of the Affordable Care Act, please visit the IRS website or by clicking here.

Tax time can be stressful on everyone. To lessen the anxiety about filing taxes, the IRS has created some tips to reduce tax-time stress.

Don’t procrastinate. Resist the temptation to put off your taxes until the very last minute. Rushing to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

Try IRS e-file.  Last year, 79 percent of taxpayers – 106 million people – used IRS e-file, which is the safest, easiest and most common way to file a tax return. If you owe taxes, you can file immediately and pay later (by the April 17 tax deadline). Best of all, when you combine e-file with direct deposit the IRS can generally issue your refund in as few as 10 days.

Don’t panic if you can’t pay.  If you can’t pay the full amount of taxes you owe by the mid-April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the web-based Online Payment Agreement application available at www.irs.gov. To find out more about this simple and convenient process, type “Online Payment Agreement” in the search box at www.irs.gov.  You can also contact the IRS to discuss your payment options.