Q: Should I e-file my tax return?

A: Yes, you should e-file your tax return. E-filing your tax return is faster, safer, and more accurate than mailing your tax return. You need to sign form 8879 to authorize the CTP to e-filing on your behalf.

Some of the benefits of IRS e-filing are:

- No mail loss - IRS verifies receipt of the tax return

- Less processing time - It will be processed immediately

- Less paper - help save the ecology

- Faster tax refunds - approx. 2 weeks 

- Available 24/7  

Q: Any other tax credits that I should be aware of?

A: Yes, for 2020 personal income tax credits, there are the following:

Dependent and Child Care Credit:

- Your child must be less than 13 years old.

- No age limit for spouse or dependent who can not care for themselves

- The caretaker cannot be your dependent.

- Can claim up to 35% of the expenses up to $3,000/child, maximum $6,000 for 2 or more children.

Educational Credits:

  American Opportunity Credit:

- $2,500 per year. 40% refundable

- 100% of the 1st $2,000 qualified expenses

- 25% of the next $2,000 qualified expenses

- Single phase out: $80,000 - $90,000

- Married phase out: $160,000 - $180,000

  Lifetime Learning Credit:

- 20% of up to $10,000 qualified expenses

- Single phase out: $58,000 - $68,000

- Married phase out: $116,000 - $136,000

Miscellaneous Credits:

- Adoption Non refundable Credit $15,950/child

Q: What is the 2023 capital gain tax rate?

A:

- For Short term, it will be taxed as ordinary income.

- For Long-term capital gains and qualified dividends:

- If your income tax rate is 15% or less, your federal long-term capital gain tax rate is 0%

- A tax rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year (28% for collectibles and 25% for depreciation recapture) for single filers with taxable income up to $406,750 ($457,600  for married filing jointly).

- Long-term capital gains or qualified dividend income over that threshold are now taxed at a flat rate of 20%.

EXAMPLE:

If a married couple already has $414,700 of taxable income and an additional $100,000 in long-term capital gains and qualified dividends, the entire $100,000 would be subject to the 20% rate. If however, they only had $400,000 of other taxable income, then the first $14,700 of the additional amount would be taxed at 15% and $83,300 would be taxed at 20%.

Q: Do you have any info on the 2023 retirement contribution and limits?

A: Here they are

- Maximum 401K contribution $22,500 ( Catch up contribution, age 50+ $7,500)

- IRA contribution limit $6,000 ( Catch up contribution, age 50+ $1,000)

- Roth IRA contribution limit $6,000 ( Catch up contribution, age 50+ $1,000)

- Keogh/SEP limit, lesser of 25% salary or $57,000 ( No catch up contribution)

- SIMPLE PLAN limit $15,500 ( Catch up contribution, age 50+ $3,500)

- Employer is required up to 3% matching

Q: How long should I keep my tax-related records?

A: 

- retain records for 3 years from the time the tax return was due, filed, or amended; or 2 years from the date the tax was paid, whichever is later

- retain records for 6 years if the tax is underpaid by 25% or more

- retain records forever if there is a fraud or failure to file issue

- retain capital gain/loss, net operating loss, and similar records which may form the basis of claims made on future tax returns indefinitely.

Q: What records should I keep?

A: For your concern, please keep the following records:

Income: 

                    * Form(s) W-2                     

                    * Form(2) 1099

                    * Bank statements

                    * Brokerage statements

                    * Form(s) K-1

Expenses: 

                    * Sales slips

                    * Invoices

                    * Receipts

                    * Canceled checks or other proof of payment

Home: 

                    * Closing statements

                    * Purchase and sales invoices

                    * Proof of payment

                    * Insurance records

Investments: 

                    * Brokerage statements

                    * Mutual fund statements

                    * Form(s) 1099

                    * Form(s) 2439

Q: Must I retain original business expense receipts if I scan and store them on the computer?

A: No, taxpayers may destroy the original hardcopy of books and records and the original computerized records detailing the expenses of a business if they use an electronic storage system. 

Business often maintains their books and records by scanning hard copies of their documents onto a computer hard drive, burning them onto a compact disc, or saving them to a portable storage device. The IRS classifies records stored in this manner as an "electronic storage system." Businesses using an electronic storage system are considered to have fulfilled IRS records requirements for all taxpayers, should they meet certain requirements. And, they have the freedom to reduce the amount of paperwork their enterprise must manage. 

Q: How do I deduct a contribution of clothing or a household item under the new rules?

A: The new Pension Protection Act cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better." 

Good used or better condition

As one charity spokesperson summed it up, "Don't donate anything you wouldn't want to wear yourself."  

Household items include furniture, furnishings, electronics, appliances, and linens, and similar items. The new law authorizes the IRS to deny a deduction for the contribution of a clothing or household item that has minimal monetary value.

Fair market value

You generally can deduct the fair market value of your donation. If you're not sure about an item's value, a reputable charity can help you determine its fair market value.

Get a receipt

Generally, you must obtain a receipt for your gift.

Charitable contributions of the property of $250 or more must be substantiated by obtaining a written acknowledgment from the charity including an estimate of the value of the items. If your deduction for noncash contributions is greater than $500, you must attach  Form 8283 to your tax return.

Special rules apply if you are claiming for a deduction of more than $5,000.

Q: What Tax form should I use for my tax return?

A: In general:

1. Individuals: Form 1040EZ, 1040A or 1040 depending on your situation.

Also, the following schedules might be needed:

- Schedule A&B: Itemized deductions (A), Interest and Dividend (B) but if your total interest is less than $1500 and your dividend is less than $1500, use form 1040 to report them directly.

- Schedule C:  Profit or Loss from your business. You can use the simpler Schedule C-EZ if your business expenses are under $2,500, you do not have inventory or employees, you use the cash method of accounting, and certain other requirements are met.

- Schedule D:  Capital Gain or Loss (Stock, Commercial sales).

- Schedule E:  Supplemental Income and Loss (Rental)

2. Sole Proprietorship: Form 1040, Schedule C  and Schedule SE

3. C Corp: Form 1120

4. S Corp: Form 1120S, shareholders get  K-1 (1120 k-1)

5. Limited Liability Company (LLC):

  - Sole proprietor: Form1040, Schedule C  and Schedule SE

  - Partnership: IRS Form 1065. Members get K-1 (1065 K-1)

Q: How to form a company (LLC/Corporation)?

A: Forming an LLC (limited liability company) or a corporation is not as hard as most people think. Here are 5 steps you need to take to make your company a legal reality.

- Choose a business name that complies with state's rules.

- File formal paperwork, usually called articles of organization, and pay the filing fee (California's fee is $800)

- Create an operating agreement, which defines the rights and responsibilities of the members/officers.

- Publish a notice of your intent to form a company.

- Obtain licenses & permits to be required for your business. 

Choosing a Name for Your company

The name of your company must comply with the rules of your state's division. (Typically, this office is combined with the corporation's division and is part of the secretary of state's office.) While requirements differ from state to state, generally:

  * the name cannot be the same as the name of another company in the system.

  * the name must end with an LLC, INC or CORP designator, such as "Limited Liability Company" or "Incorporation" or an abbreviation of one of these phrases (such as "LLC," "INC" or "Ltd. Liability Co."), and

  * the name cannot include certain words prohibited by the state, such as Bank, Insurance, Corporation or City (state rules differ on which words are prohibited). 

Your state's office can tell you how to find out whether your proposed name is available for your use. Often, for a small fee, you can reserve your name for a short period of time until you file your articles of organization.

Besides following your state's naming rules, you must make sure your name won't violate another company's trademark.

Once you've found a legal and available name, you don't usually need to register it with your state. When you file your articles of organization, your business name will be automatically registered.

Filing Articles of Organization

After settling on a name, you must prepare and file "articles of organization" with your state's filing office. While most states use the term "articles of organization" to refer to the basic document required to create a company, some states use the term "certificate of formation" or "certificate of organization."

Filing Fees

One disadvantage of forming a company instead of a partnership or a sole proprietorship is that you'll have to pay a filing fee when you submit your articles of organization. In most states, the fees are modest -- typically around $100. In a few others, they take a bigger bite: this includes California, which charges an $800 annual tax on top of its filing fee.

Required Information

Articles of organization are short, simple documents. In fact, you can usually prepare your own in just a few minutes by filling in the blanks and checking the boxes on a form provided by your state's filing office. Typically, you must provide only your company's name, its address, and sometimes the names of all of the owners -- called members. Generally, all of the member/ officers can appoint just one person to do so.

Registered Agent

You will probably also be required to list the name and address of a person -- usually one of the members -- who will act as your "registered agent," or "agent for service of process." Your agent is the person who will receive legal papers related to the company.

Creating a company Operating Agreement

Even though operating agreements need not be filed with the filing office and are rarely required by state law, it is essential that you create one. In the company operating agreement, you set out rules for the ownership and operation of the business (much like a partnership agreement or corporate bylaws). A typical operating agreement includes:

    * the members' percentage interests in the business

    * the members' rights and responsibilities

    * the members' voting power

    * how profits and losses will be allocated

    * how the company will be managed

    * rules for holding meetings and taking votes, and

    * "buy-sell" provisions, which establish rules for what happens if a member wants to sell his or her interest, dies, or becomes disabled. 

Publication Requirements

In a few states, you must take an additional step to make your company official: You must publish in a local newspaper a simple notice stating that you intend to form a business. You are required to publish the notice several times over a period of weeks and then submit an "affidavit of publication" to the filing office. Your local newspaper should be able to help you with this filing.

Licenses and Permits

After you've completed the steps described above, your company is official. But before you open your doors for business, you need to obtain the licenses and permits that all new businesses must have to operate. These may include a business license (sometimes also referred to as a "tax registration certificate"), a federal employer identification number, a sellers' permit, or a zoning permit.