What do I do if I receive a notice from the IRS about
Don’t panic! the first thing to do is carefully read
the notice—to determine why it was sent, what the IRS
is requesting, and what they want you to do. It may be
nothing of importance; it may even be a notice in your favor.
After reading it you should bring it to our attention.
What is the difference between a C and an S
A C Corporation and an S Corporation are exactly the same in
respect to liability protection. The difference is in how you
are taxed. A C Corporation has what is referred to as a
double taxation. First the corporation is taxed, and secondly
the dividends are taxed on the shareholders’ tax
returns. An S Corporation is not taxed at the corporate
level, only at the shareholder level. Most small businesses
are eligible to file as S corporations. But the appropriate
election must be made.
What are the consequences of early withdrawals from my
If you withdraw money from a 401(k) or an IRA before age 59
½, the distribution is taxable and there is a 10%
penalty on the taxable amount. The main exceptions
that let you withdraw money early without penalty are as
Qualified retirement plan distributions if you separated
from service in or after the year you reach age 55 (does
not apply to IRAs).
Distributions made as a part of a series of substantially
equal periodic payments (made at least annually) for your
life or the joint lives of you and your designated
Distributions due to total and permanent disability.
Distributions due to death (does not apply to modified
Qualified retirement plan distributions up to (1) the
amount you paid for unreimbursed medical expenses during
the year minus (2) 7.5% of your adjusted gross income for
IRA distributions made to unemployed individuals for health
IRA distributions made for higher education expenses.
IRA distributions made for the purchase of
a first home (up to $10,000).
Distributions due to an IRS levy on the qualified
Qualified distributions to reservists while serving on
active duty for at least 180 days.
Are there plans with tax savings for college?
The main plans for saving for college are the 529 plans and the
What do I need to keep for my charitable
First, is your contribution cash or non-cash?
If you make a cash donation, you must have a bank record or
written communication from the charity showing the name of
the charity and the amount of the donation. A bank record
can be the cancelled check or a statement from a bank or
credit union—so long as it lists the charity’s
name, the date, and the amount of the contribution.
Personal records such as bank registers, diaries and notes
are no longer considered acceptable proof of contributions.
Any used items (such as clothing, linens, appliances, etc.)
must be in good condition and may only be deducted at the
price you could reasonably ask for the item in used
condition. For contributions worth $250 or more, you must
have a written receipt or letter from the organization. For
contributions worth $500 or more, you must file Form 8283
(Noncash Charitable Contributions) and attach it to your
All contributions must be made to qualified charitable
Is my social security taxable?
Usually if your income including social security benefits is
less than $25,000 if single or $32,000 if married, your
benefits are not taxable. If your income is higher than those
limits, there are formulas to determine what percentage of your
social security is taxable. Currently up to 85% of your social
security may be taxable.
When can I make contributions to my IRA?
Generally for any tax year, you can make a contribution to your
IRA up until the original due date of the return (usually April
15). Thus for tax year 2007, you can make contributions from
January 1, 2007 through April 15, 2008.
What are the differences between a Roth and a conventional
A traditional IRA lets you deduct contributions in the year you
make them, and the distributions are included as income on
your return when you withdraw from the IRA after reaching age
59½. A Roth IRA does not let you deduct
the contributions, but you also do not report the
distributions as income, no matter how much the Roth account
has appreciated. With a Roth, you can exclude the income
earned in the account from being taxed.
How should I keep records for my business driving?
Keep a log in your vehicle and record the purpose and mileage
of each trip. You also need to record the odometer readings at
the beginning and end of each year, as the IRS will ask you for
total miles driven during the year. Keep your repair bills as
these normally record odometer readings when the car is
My employer tells me I will receive a 1099. What does this mean
for my taxes?
When you receive a 1099, it means you are considered an
independent contractor. You will not have any withholding or
payroll taxes deducted from your pay. You should keep track of
all business expenses and a journal of your mileage driven for
work. If the amount you expect to receive is substantial, you
should probably be making estimated tax payments. Please
contact us if you have any questions about this.
What is depreciation?
For tax purposes, depreciation is the expensing of the cost of
an item over its estimated useful life. If property you acquire
to use in your business is expected to last more than one year,
you generally cannot deduct the entire cost as a business
expense in the year you acquire it. You must spread the cost
over more than one tax year and deduct part of it each year.
This method of deducting the cost of business property is
called depreciation. There are many different methods of
depreciation and other rules that allow you to claim the
expense in one year.