Interesting Facts About the IRS

ImageThe IRS recently posted their statistics for the financial year 2012.  I’m a money geek so of course I find this interesting, but here are some stats that I thought you might find useful.

 In 2012, the United States Internal Revenue Service collected almost 2.5 trillion dollars.  Here is what that looks like in numbers: $2,500,000,000,000. 

 They also processed 237 million tax returns (as of this writing, the population of the US is about 315½  million.)

 More than half of these tax returns filed were filed electronically.  Obviously the IRS would like all returns filed electronically since this would cut down on their costs. 

 Now, here is where things get interesting and useful to all of us.  In 2012, the IRS examined (audited) almost one percent of all tax returns filed.  That means the chances of you being audited by the IRS is one in one hundred.  Most of the audits are done on high income taxpayers.  And what happens to those people who are audited?  Ninety-six percent of them will end up paying additional taxes to the IRS.

 The two important things to remember in filing tax returns is to first have them prepared honestly and well AND lower your chances of being audited in the first place by knowing what constitutes a “Flag” that could trigger an IRS audit?  More on this later.

 Best regards,

 Ed Renna

 Renna & Associates Accounting Firm

Accounting and Tax Preparation

Established 1979

1229 N. Lamer Street

Burbank, CA 91506

(818) 749-2832

CTEC Registered Tax Preparer # A145971

Home Owner’s Tax Tips

houseWhether you are a first-time buyer, a long-time homeowner who refinanced, or a seller, there are a many important deductions available to you.

The easiest way for a family to get more than just the standard deduction is to claim tax breaks related to a house. Charitable deductions or a smattering of health care costs might not add up to the $5,950 standard deduction for individuals or the $11,900 mark for married couples. But a few of these big-time deductions can push you over the top and result in a much bigger return.

The downside is no more simple tax returns, since you’ll have to itemize. But the money you’ll get back makes it all worthwhile.

Here are seven important tax tips for homeowners to ease the process:

• Mortgage interest is your best friend:  If you just bought a home or refinanced in the last few years, the savings can be significant, since more than half your monthly payment goes towards interest. For more information:  Tax Information for Homeowners  

Home Mortgage Interest Deduction

• Mortgage insurance is deductible:  That’s a big benefit for lower-income homeowners who often can’t afford a big down payment and must pay private mortgage insurance until they have at least 20% equity in their homes.

• Taxes are tax deductible: It sounds odd and is frequently overlooked, but homeowners can deduct their local and state property taxes on federal tax returns. There also may be special property tax benefits for lower-income homeowners based on your state or city of residence, so look into further breaks specific to your community.

• Qualified renovations count: Fixing a leaky faucet or putting crown molding in the living room is not tax deductible. But there are a number of items in the tax code that allow for tax breaks and credits. Several items covered under residential energy efficiency can provide tax relief, including new solar panels or certain hot water heaters. There are also deductions that can be made for home office improvements, as well as for medically necessary changes, such as an entry ramp or a handicap-accessible bathtub.

• Unqualified renovations can count later: While that new addition might not be “necessary,” the expense could be an important tax deduction when you sell.  The IRS allows you only $250,000 of profit when you sell a primary residence, but you can deduct any renovations that boosted your home’s value from any total profit to get under that threshold. Find those receipts if you’re sitting on a big profit and planning to sell.

• Claim selling costs: If you sold a home in the past year, costs including title insurance, advertising and real estate broker fees can also be claimed on your return. You can claim certain repairs to reduce your capital gains on the sale, presuming they were made within 90 days of the sale and clearly for the intent of marketing the property. For more information:  Selling your home

• Don’t forget moving expenses: If you bought a home in 2012, there’s a chance that you did so because of a job-related move. If this is the case, you may be able to deduct some expenses, provided you have the receipts. You must have moved 50 miles or more, and the reasons for your move can’t be personal. For more information:  Moving Expenses

Quick Tax Tips

by Ed Renna

1. Do you have medical expenses for 2012?  You can deduct these costs if they add up to a certain percentage of your adjusted gross income.  When considering medical deductions, don’t overlook prescriptions for eye glasses and contacts as these fall into the same category as wheelchairs and hearing aids.  Another fact that should be known is that you can deduct 23 cents per mile for driving to and from medical appointments.

 More info here: http://www.irs.gov/pub/irs-pdf/p502.pdf

tax expense medical

2. Did you know that you can take job-hunting write-offs?  These can be taken even if you’re not unemployed.  For example, you can deduct your investments in stationery, business cards, and your travel expenses to interviews, even if you’re only searching for a better job.

More info here:  http://www.irs.gov/uac/Job-Search-Expenses-Can-be-Tax-Deductible

3. Do you donate your time, money or items to charity?  Most people know that their clothes, furniture, cash, and other items donated to charity are tax deductible.  But most tax payers don’t realize that they can also deduct 14 cents per mile for any driving done on behalf of charity.

More info here:  http://www.irs.gov/taxtopics/tc506.html

charitable contributions

4. Be sure to claim income on any freelance work or temporary job.  You’ve got to report ALL of your income, even small sources of it.  Otherwise there is bound to be a discrepancy in your filing.  If you’ve worked for honest people they will report income paid to you and even a small discrepancy could set off red flags and trigger an audit.

More info here:  http://www.irs.gov/taxtopics/tc400.html

home office deductions

5. If you have a home office and want to take deductions relating to it, make sure your office space is not also serving as a storage space or a playroom. The IRS states that the home office should be used exclusively as an office.  You may include portions of property taxes, utilities and insurance.  I suggest taking pictures of your home office that shows it being used as an office exclusively.  Keep pictures for future reference in case it ever becomes an issue with the IRS.

More info here:  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction

Hope this helps.  Call or send an email if you have any questions.

Ed Renna
Renna & Associates Accounting Firm
Accounting and Tax Preparation
Established 1979
1229 N. Lamer Street
Burbank, CA 91506
(818) 749-2832
CTEC Registered Tax Preparer # A145971