Saving by Giving
Who would you rather give your money to? Is it Uncle Sam, your children, or maybe your favorite charity? Well, you can make sure your money ends up where you want.
CPA Susan Hantman says you can reduce your tax liability by either donating to your favorite charity or gifting to a loved one. And to top it off, the amount you can gift an individual has gone up this year to $11,000. So, for example, if you're married with children, you and your spouse can each give each child $11,000. That means you can actually give your son or daughter a total of $22,000.
Giving that kind of money away not only cuts your taxes, but also gives the recipient a head start on saving... whether for college or for their first home. Also, remember, you're not limited to giving just cash. Stock or appreciated property works too.
If this idea sounds good to you, it's best to talk with an expert before shifting income. It's also important to remember, once you gift, it's gone.
Preparing for an Audit
It's that time of the year when we're attending holiday parties, shopping for gifts, and checking our lists twice. Right? Well... if you're one of the 750 thousand Americans who are going to be audited this upcoming tax season... . there's even more paperwork you may want to look over.
The Internal Revenue Service says an audit doesn't have to be a total nightmare. Around 30% of audited taxpayers either have no additional charges or are due a refund upon review. Also, in some cases, you won't even know that your tax return is under scrutiny. The IRS may go directly to your accountant or employer to confirm your records.
If that's not the case, you may have to deal with the IRS one-on-one. But, much of this work can generally be done by mail. You'll get a letter asking you to send copies of receipts for certain expenses or contributions.
But, if that face-to-face visit must happen, there are things you can do to make the process a lot easier:
Make sure you keep all your paperwork in order. That means, as soon as you mail out your tax return, don't throw away all your receipts and important papers you're collecting right now. So, what should you keep? And, how long should you keep it?
According to the IRS, any documents you need to support your income or deductions should be kept for a minimum of three years. This may include:
Records for Charitable Donations
Credit Card Statements (that support a deduction)
>>After You Sell
There is some documentation you should keep for at least three years after you sell, cancel or otherwise get rid of the property or service. This includes:
Real estate records
Receipts for major repairs or renovations
Terms and conditions for credit cards
Terms and conditions for other loans, like a mortgage or car loan
Receipts for big-ticket items that come with warranties. Staple the receipt to the warranty and file it away.
If you get word that an audit is on the way, you may want to seek help. For example, if you used a CPA to prepare your tax return, give him or her a call. Your accountant may have records or worksheets to help the process along.
Have you ever heard of the phase... "don't let them see you sweat?" Make this your motto. When you meet the auditor, the IRS suggests being as helpful as you can.