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Tax Attorney Minneapolis | Keeping Tax Records After Filing Your Tax Return

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Once in a while, I get a question from my clients on how long and what type of records they need to keep after they file their tax returns.  Generally, you should keep any and all documents that may have an impact on your federal tax return. For example, it is a good idea to keep bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

If you are self-employed, you are probably likely to keep a much larger pile of documents than other individual clients.  The documents should generally include all revenue records, expense records, depreciation records, and so on.  You should consult a tax professional on what type of records you should keep and how long.

Most individual taxpayers will need to keep their tax records for at least three years.  Some documents –  such as those related to a home purchase or sale, stock transactions, business property records – should be preserved for a longer period of time.

Generally, I advise my clients to err on the side of keeping the documents.

If you have any questions on whether you should keep a given documents, you should consult your accountant or a tax attorney.

Mortgage Debt Forgiveness Tax Relief: Basic Facts

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Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence during tax years 2007 through 2012. The limit is $1 million for a married person filing a separate return. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

In order to qualify for the tax relief, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

However, proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion. Debt forgiven on second homes, rental property, business property, credit cards or car loans also does not qualify for the tax relief provision.

If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. You should examine the Form 1099-C carefully and notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

If you qualify for tax relief, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

Note that other tax relief provisions – such as insolvency – may be applicable.

Understanding Citations of Treasury Regulations

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Understanding how to cite Treasury Regulations is crucial to being able to find the regulations relevant to a tax case.  This is why I devote this brief essay to explaining the location and basics of citation of Treasury Regulations.

Treasury Regulations are located in Title 26 of the Code of Federal Regulations (“C.F.R.”).  This corresponds to title 26 of the United States Code.

The overall form of citation is as follows: C.F.R. part number, a decimal point, a Code section number, a dash, and a number of further subdivisions.  The “C.F.R. part number” basically indicates the general nature of the regulations – i.e. to what area is the regulation related.  The numbers are assigned to areas in the following way: “1″ relates to income tax, “20″ relates to estate tax, “25″ relates to gift tax; “31″ relates to employment tax (withholding), “301″ relates to administration and procedure, and “601″ relates to the Commissioner’s rules.

Let’s look at a specific example and try to decipher what it says at according to the general form described above: Treas. Reg. § 1.162-1.  “Treas. Reg.” is a common form of abbreviation of “Treasury Regulations”; “1″ is a C.F.R. part number which tells the reader that this regulation relates to the income tax;  “162″ is a Code section number which specifically discusses the deduction of business expenses; “ dash 1″ indicates a citation to the first subdivision of the regulation.  In sum, Treas. Reg. § 1.162-1 refers directly to a first subdivision of the regulation with respect to business expense deduction from income tax.

The ability to quickly read, understand, and find a relevant treasury regulation is just one of the many skills that an experienced tax attorney needs to have.

IRS to Start Processing Delayed Returns on February 14, 2011

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On January 20, 2011, the IRS announced that it plans to start process tax returns, which were delayed as a result of the last month’s tax law changes, on February 14, 2011. It should be remembered that the taxpayers can begin preparing their tax returns immediately because many software providers are ready now to accept these returns.

Beginning February 14, 2011, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction.

Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.

Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.

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If you have any questions with respect to your 2010 tax return, call Sherayzen Law Office to discuss your tax case with an experienced Minneapolis tax lawyer.