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Frequently Asked Tax Questions

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“How much would you charge to do my tax return?”
I’m sure this is breaking some billing secret but instead of giving the usual “IT DEPENDS” answers. Here some averages for potential clients to consider.

1040 with W-2 income and a limited Schedule A (mortgage interest, property taxes and charitable deductions) average $150-200.

If your 1040 return also requires Schedule B (dividends & interest income) and limited Schedule D (stock sales, etc), Schedule A with employee business expenses the average increases to $225-275.

If you have a small business that requires Schedule C or a farm that requires Schedule F the average is $375. 1040’s with rental property, Schedule E, also average $325-400.

Complex 1040’s average $475 and up.

The price mainly depends on how well organized your business records are and the amount of time I have to spend digging through receipts. Naturally, I’m quite versed in the ART of receipt digging and don’t mind as long as you understand there is additional cost involved.

Other types of returns such as C corporations, S corporations, Partnerships, LLC, LLP, 5500, not-for-profit 990’s, etc. receive an “IT DEPENDS” answer. Sorry, but the time involved and range of complexity with business returns do not lend themselves to any easy averages.

If you would like an estimate, I can usually give a fair fee estimation from reviewing last year’s tax return. Just fax, scan or mail me a copy of the return and if you decide to use someone else I’ll be happy to mail back all your information FREE OF CHARGE.

How long should I keep my individual tax returns?
Generally, all taxes must be assessed within a 3 year period from the date the return was filed or the return’s due date (with extensions) which ever is later. If the return has an understatement of more than 25% of the Adjusted Gross Income, the IRS gets an additional 3 years and a 6 year statute of limitations applies. For individual returns with partnership or S corporation flow-thru, I would recommend keeping them 6 years. If no tax return is filed or the return if fraudulent, the government can asses tax at any time without regard to the statute of limitations.

I haven’t filed in many years. It’s past the statute of limitations, so I’m “SAFE”, Right?
No. The 3 year or 6 year statute of limitations in certain cases, starts tolling once a return is filed. If no return is filed the running of the statute never starts and the IRS can asses taxes for ALL years not filed. Remember, it’s always better to file over due tax returns BEFORE the IRS comes knocking at your door.

How far back can the IRS audit my returns?
Generally 3 years, if there is underreporting of gross income exceeding 25% the statute of limitations is extended to 6 years. If no return is filed or the return is fraudulent the statute NEVER runs out!

We originally filed married filing separately but married filing joint reduces our total tax bill. Can we amend the return to show married filing joint?
Yes, if it’s within 3 years of due date of the return including extensions you can amend your return and change your filing status to married joint.

I have a home based business. Do I have to let the IRS enter my home?
NO. Unless the IRS has a court order to enter your home, you are free to tell the IRS agent to “get lost”. If the agent seems to be questioning the validity of your home office expect him or her to deny that deduction.

I inherited some stocks and property. How do I determine my tax basis?
Your tax basis is the Fair Market Value (FMV) of the property at date of death or if the estate elects 180 days after the date of death.

My business hasn’t made a net profit in the past 3 years; will the IRS disallow my current year loss?
Under IRC section 183, there is presumption that a business has a “profit motive” if there is a net profit in 3 out of the last 5 years. Activities that are not engaged in for profit are classified as “Hobby Losses” and expenses are only deductible to the extent of income produced by the activity. Any remaining hobby loss is deductible as a 2% miscellaneous itemized deductions.
Will the IRS deny the loss in year 4? It depends. If you have kept good records that document your attempts to make money, the time and financial investment put into the activity and any corrective actions you have made to stem the losses, then you may win the presumption of a hobby argument.

I lost my brokerage statements in a move or divorce. How can I determine my basis in the shares I sold?
First, contact the brokerage company and see if they might have the purchase information. If that is not a possibility, there are several online resources that may help you determine your basis if you can determine the approximate date or year of purchase.

I lost my prior year’s tax return, where can I get a copy of it?
If you need a copy of an old tax return, you can file Form 4506 to request a copy. There is a small fee for this service and it generally takes about 60 days. If you need the information sooner, you might consider requesting a transcript of the return. There is no fee and usually takes 10 days. The transcript is a raw listing of the amounts on your return and in some cases may be all you really need.

I was married/divorced in last year; can we file a joint return?
The last day of the tax year determines your marital status for tax purposes. You are considered married until a FINAL decree of divorce or legal separation is entered. Even through a husband and wife are not living together on the last day of the tax year, they CAN still file a joint return if the legal separation or divorce is still pending. For obvious reasons, divorcing couples may want to file married filing separately.

My sister was injured in a car wreck last year and unable to work; can I take a deduction for the mortgage interest and taxes I paid on her behalf?
No. Unfortunately, you must have an ownership interest in the property to take any deduction.

How do I deduct the points paid on refinancing my home?
Points paid on a mortgage refinancing are not currently deductible but must be capitalized and amortized over the life of the new loan.

Does software qualify for the IRC section 179 expensing option?
NO. Software is an intangible asset and does not meet the requirements of tangible personal property under section 179. Software is generally capitalized and amortized over a 36 month period beginning when it is first placed in service. UPDATE: The Jobs and Growth Tax Relief Reconciliation Act of 2003 changed the definition of qualified section 179 property to include "off the shelf" software.

I worked for two employers last year and the total social security taxes withheld exceeded the maximum allowed, how do I get my money back?
The excess social security collected is allowed as a credit. Basically it’s treated as additional federal tax withheld. If you have one employer and they over collect for social security a credit is NOT allowed on your tax return. The excess amount must be refunded directly by the employer.

I received a large gift last year from my parents. Do I have to report it as taxable income?
First of all be sure to thank mom and dad! The parents may want to check to see if they need to file a Gift Tax Return but there are no income tax consequences to you from the gift. However, any taxable income made off the gifted property is subject to income tax.

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