Simply Junior

Most tax deadlines are easy to remember like the filing deadline or the due date to pay estimated tax payments however, when it comes to how long to keep tax records, most people do not have a clue. So you want to know, how long to keep tax records?

The easy answer is until the statute of limitations expires for that tax return. Records that should be kept include receipts, canceled checks, and other documents needed to prove to the IRS your filing was legitimate! This is usually three years from the DUE DATE for the tax return or when the return was actually filed with the IRS or two years from the date the tax was actually paid to the IRS, whichever is LATER. This is generally accepted as the time period in which the IRS can question your tax return.

NB: If you do not file your taxes or file a fraudulent or false tax return there is no statue of limitations. This is what trips up a lot of people, when the IRS comes knocking after 5 years and all of the tax records have been discarded after 3 years. You MUST know, it is the IRS that will claim that a tax return was fraudulent or false. Not filing any taxes at all is self explanatory.

Some tax records should be kept indefinitely, like property tax records. These records will be required to prove to the IRS your gain or loss when you sell the property.

Statute of Limitation provisions differ, here are some you should keep in mind:

You should retain documents verifying the value of real estate or stock until you sell them and realize a gain or loss plus the three-year statute of limitations on the tax return filed after that sale with the IRS.

Keep indefinitely copies of your tax returns. Yes, there is the statute of limitations is 3 years but it will not apply if the IRS suspects it was fraud or filed falsely. Keep those tax returns. Something else to consider is that without your knowledge the IRS changes many returns. The original may be necessary if IRS records are magically different from what you filed.

Keep tax records that relate to any claim with the IRS for a tax refund or tax credit that was based on bad debts or losses on worthless securities for at least seven years. You may find you need these in the future.

Net operating loss (NOL) can be carried back 2 years and carried forward 20 years. It is very important for you to keep your tax records until all net operating losses are used to offset taxable income and the carry forward term expires. Add the 3 year statute of limitations on the tax returns filed with the IRS that used the carry forward.

Beware: If it is found by the IRS that you understated your gross income by 25% or more the statute of limitations will be doubled to 6 years. Take this advice, if there is anything EVER questioned on your tax return, keep the return and all supporting documentation indefinitely

Also, in a case where a fraudulent tax return has been filed, or no tax return has been filed with the IRS, the IRS can make this assessment at any time.

Finally: An employer must keep all employment tax records for a minimum of 4 years after the taxes are due the IRS or have been paid, which ever is later.

According to the Tax Foundation, most Americans will have to work until nearly May to pay 2008′s tax obligations. Of course, the nearly four months’ is an average for all working Americans. But it’s still quite a bit of work just for tax payments!

The good news is that it’s three days earlier than in 2007, reversing the trend that had been occurring for the past four years. That change is largely due to the tax stimulus checks that should be rolling out starting next week and the economic slowdown. The not-so-good news is that Americans are working longer to pay all their taxes than they are to pay their combined housing, food and clothing costs. Of course, these are averages for all Americans, so there may be some differences for your family.

But why should any of this matter to your family? And even if it does, isn’t this just something for parents to worry about?

Making it part of family financial education

It can be easy to see why Mom and Dad would care about how much taxes are costing their family. But does this really matter to kids? Most of them, even working teenagers, don’t have to pay much in taxes, if any.

So income taxes may not matter. Then why worry about how to make it part of the family financial education?

It’s important for parents to understand the impact of taxes on their lives – and the impact that taxes can have on their families. Tax Freedom Day is a reminder of that impact because it is such an easy way to show how much people work just to cover taxes. And it can be a reminder that financial education is more than allowances and piggy banks.

So at some point, parents need to explain what taxes are to their kids. But the best place to start is not likely income taxes – it is sales tax.

Why? Because one of the first money lessons that kids learn is related to buying something they want. And they can see that the candy that had a 99 cent tag on it really costs them over a dollar at the cash register with the difference being sales tax. And with very few exceptions, sales tax is everywhere. So it deserves to have a place in money education.

And it just might make the income tax discussion a little easier when that time comes.

Taxes are a part of life and each person needs to pay his or her taxes on time. Every year, an individual has to pay tax to the government on the income earned during the year. Therefore, you will require the correct tax forms for each and every year. Presently, we are in the year 2008, so why would one need a tax form for 2005? There are a good number of reasons for this. You may have missed the payment of taxes for 2005 and if that is the case, you have to rectify the situation as early as possible. No matter what the date is, you will have to get the taxes worked out and sent in.

The first step is to acquire the 2005 tax form. How does one obtain the 2005 tax form? There are two methods of doing this. One is to inquire with the IRS office or the Department of Revenue for your state and obtain the forms from them. The second option is to go online to the websites and print any of the forms that you may require. If you have missed paying the taxes on your income for 2005, you may have to find out from the IRS and even the Department of Revenue, what penalties will be levied for the lapse. You can also find out if the taxes for 2005 can still be sent in or not. Depending on their reply, you can then obtain the forms, work out the taxes, and send them to the concerned department to avoid any more trouble in future.

It is essential to maintain a record of all your tax payments for each year. You can do this by retaining copies of your 2005 tax forms and for all the other years too. This saves a lot of time and energy if your tax payment record is requested for, by the government or any other agency. You can also be prepared in the eventuality that your tax payment may be audited some day by the government.

It is the duty of each individual to complete their taxes and send them to the government every year, within the due date. In the event of missing the deadline for the year, one has to take care of the issue as soon as possible. Taxes are a part of everybody’s life whether they like it or not. It is an issue that cannot be pushed under the rug or done away with. It is a fact one has to deal with every year.

Who is Subject to Paying Quarterly?

Everyone, in essence. Individuals whose tax obligation for any year exceeds $1000 need to make payments on those taxes due throughout the year. Most of us do without realizing it. If you are an employee at a regular job, most likely, those taxes are withheld from your paycheck by your employer. If, however, you are an independent contractor, own your own business, or make other money on the side, you are responsible for making those payments.

When and What to Pay

Four times per year, you must pay estimated taxes on your income and self-employment tax using Form 1040ES. Due dates for these payments are: April 15, June 15, September 15, and January 15. You are supposed to estimate the amount of income you will earn and subsequent taxes you will owe for the entire year. Self-employment tax must be taken into consideration when figuring estimated payments. You need to then pay 25% of this amount each quarter.

Tax software generally figures your estimated taxes based on what you did in previous years. It can also prepare estimated forms for you.

If you are not liable for paying estimated taxes prior to a given due date, but become liable before the next due date, file for the quarter you become liable, but increase your percentage paid.

Example:

Dan has a regular job through which taxes are withheld from each paycheck. He begins selling online. During the first part of the year, he is having enough taxes already withheld to cover his online income, as well as his regular income.

In July, however, his online sales spike significantly. He realizes the amount withheld from his regular paycheck will no longer cover his total tax liability. He may file a Form 1040ES by September 15, paying enough to equal a total of 75% (when combined with his regular withholdings) of his estimated tax due without realizing penalties (75% because it is the third quarter).

Dan may also be able to increase the amount he has withheld from his regular paycheck, instead of having to file estimated payments.

If you (and/or your spouse if married filing jointly) has income tax withheld from a paycheck, no estimated taxes are due if the withheld taxes cover more than 90% of the total tax bill for that year – or – if the tax withheld totals more than your entire tax bill from the previous year.

This means if you (or your spouse if married filing jointly) is an employee at another job besides the business, just make sure to have enough tax withheld from each check to cover taxes due from your business income, too. If so, you can forget about making estimated, quarterly payments. In essence, that withholding is paying your quarterly business payments, as well as the taxes due on the other earned income.

IRS Publication 919 will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. It will also help you determine how much additional withholding you may need each payday from your regular job in order to avoid owing taxes and penalties for not filing quarterly. To add to the amount withheld from your regular job, you will need to fill out a new W-4 for your employer.

Form 1040ES

Form 1040ES is a simple payment voucher where you list your names, social security numbers, and address. The only other space on the form is to write in the amount you are paying. Do not forget to include a check. There is a worksheet to help you figure your estimated tax in the instruction booklet for 1040ES.

If you earn under $150,000, quarterly payments must equal 90% of your final income tax bill or at least 100% of the tax bill from last year (amount due before deducting what had already been paid – line 63 of 1040).

If you earn over $150,000, you must pay at least 110% of the tax bill from last year, spread out quarterly, or risk and under-payment penalty.

Overpayment

If you over pay your estimated taxes and expect a refund, you may elect to apply it to the estimated payments for next year.

Underpayment

You could receive a tax penalty if you under pay or miss a deadline. If you are late, you could also end up paying interest on what you owe. Your state may require quarterly payments, as well.