Top IRS Tax Tips For 2010

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These Internal Revenue Service (IRS) tax tips will go a long way in preparing you for success but remember that everyone’s situation is unique. You should consult an IRS tax professional, IRS tax attorney, and IRS forum, and the IRS’s web site (www.irs.gov) for complete information. Also, reading up web site featuring help on taxes or various IRS tax forums can greatly increase your tax knowledge. Tax forums are also useful in that you can post a question to a variety of website and then evaluate the answers received on the various tax forums.

1. Document Collection

We will start with the basics. Throughout 2010, the best tip to prevent a headache when completing your taxes in 2011 is to file your tax-related documents in one location throughout the year. This can be as simple as putting all the documents in one folder. Most basic tax returns will require you to keep records on your income, expenses, home related items, and/or investments. It is helpful to look at a prior year’s IRS tax return, and if you have had not major changes, use the return as a guide for what documents you will need.

There are documents commonly needed in the areas of income, expenses, home related documents, and/or investments. For income you will need to keep a record of what you earned throughout the year, this could take the form of a W-2, a 1099, bank statements and brokerage statements. For expenses, you will want most commonly to keep receipts and invoices for qualified expenses. If you purchased or own a home, you will want to keep interest paid on the home, home loan closing documents, and insurance records. If you have any investments, keep any brokerage or mutual fund statements. This list is not comprehensive and you should consult the IRS web site or a tax forum for greater detail and IRS tax help.

2. Document Retention

It is also a good idea to retain important IRS taxes for a period of time. Many IRS tax lawyers advise clients to keep the last six to ten year’s worth of tax returns for an average return. The official IRS review period is three tax years in most cases according to an IRS forum. How much documentation some people keep is dictated by storage space. With today’s technology, the possibilities are endless to scan in your IRS taxes or just keep a soft copy on your computer if you use tax preparation software. Many companies and individuals who prepare taxes will also offer to email you a copy of your tax return free of charge.

The six to ten year guideline does not apply to an asset you might want to sell one day. One common example of an asset is a house. It is a good idea to keep IRS tax forms around the purchase of a house indefinitely if it might be sold one day in the future. This applies to financial assets such as stocks or bonds as well.

There are some areas that are common red flags to the IRS, as noted by experienced IRS tax lawyers. If the IRS has reason to believe you have under reported your income by 25% or more, retain these records indefinitely. The second area the IRS may question is a claim filed for worthless securities. If you fall into either of these situations, be sure to retain these records for a minimum of seven years and seek out IRS tax help or search for an IRS forum.

3. The Economy: New Tax Tips and Credits in 2010

One way in which the government has responded to the downturn in the economy is through implementing new tax laws in 2009 meant to help consumers get back on their feet in 2010. For a complete list of changes, please refer to the IRS web site or a tax forum for complete information.

Home Buyer Credit

The most well-known change is the first time home-buyer credit. This credit reaches up to $8,000 if your new home’s value qualifies you for the entire credit. There is also a move-up credit of $6,500 for a homeowner who purchased a new home but lived at their previous residence for five consecutive years out of eight years total. If you qualify for this credit, you are not able to file taxes online so please take that into account when filing.

Car Sales Tax Credit

A second change is the new sales tax deduction for purchasing a new car. The tax deduction is capped at a car’s purchase price of $49,500. If the car’s purchase price is greater than this amount, it is still possible to receive credit up to the cap. There are also income caps to this deduction. If you file a single tax return, you must make $135,000 or less. People filing a joint tax return must make $260,000 or less.

Education Credit

The Hope Education credit has been renamed the American Opportunity Credit. The credit can be used for up to $2,500 of the first $4,000 dollars of educational expenses. This is a $700 increase from 2008. In addition, you can make up to $80,000 as a single filer and $160,000 as a joint filer and still qualify for the credit. If your income is over this amount you may still qualify for a partial tax credit. Also, if you do not owe any taxes this credit is partially refundable. This means you could receive an additional $1,000 in your total refund amount.

Unemployment Exemption

Many individuals and families felt the impact of unemployment in 2009 and 2010. In previous years, unemployment income has been considered taxable income. If you received unemployment in 2009 or are receiving it in 2010, the first $2400 of unemployment income earned is tax free.

4. File Your IRS Taxes for Free

If your income is less than $57,000, you can both prepare and file your IRS taxes for free through the software Free File available on www.IRS.gov. Details of this software is available at an IRS forum and IRS tax help web sites. If you purchase at home tax software, like Turbo Tax, you will have an option to file your Federal tax return for free. There is a small charge to file your state tax return with Turbo Tax but most state web sites allow you to file for free directly with them.

While filing on your own is free, or very low cost (most tax software is deductible), if your life has seen many changes in the previous tax year it may be best to work with a professional to prepare your taxes or even IRS tax attorneys for specialized advice. Their fee is typically much smaller then deductions and credits you may not realize you qualify for on your own. Also, penalties can apply if your taxes are not completed correctly so do seek the tax advice of IRS tax attorneys. A search for IRS tax help can show which IRS tax attorneys are available in your area. To help choose between IRS tax attorneys, ask them for references from previous clients who needed help with taxes. Reading through a tax forum or even a few different tax forums will help you evaluate your individual tax situation and guide you on which route to take. Happy filing for 2010!