File Away Your Tax Return and All Related Records

Once you’ve filed your return, it’s a good idea to create a single location to keep all the information related to the tax year for which you just submitted. If you keep physical records, this means printing off your return. Including all additional schedules, and sticking everything in a file, along with all the forms you received that reported income, expenses, or other tax-related information. These are forms like the 1099 MISC, 1099 INT, etc.

It’s also a good idea to include receipts for purchased items you’ve claimed as deductions and other records. You’ve used for filing your taxes, such as accounting reports and mileage records. Then if by chance the IRS chooses to audit your tax return, you won’t have to scramble to find all the records you need to prove why you claimed these deductions and credits.

Get Organized for Next Year

There’s no better time for organizing tax records than right now. Since you just filed your taxes, you’re aware of what was hard about the process and what parts of filing you can streamline. This may mean creating a physical file or a file on your computer where you can store receipts as they come in. Since more and more receipts arrive via email, you may want to create a separate receipts folder in your email account so they’re easy to find.

If you think you’ll be able to claim new deductions or credits next year, now is the time to start gathering the information to do so. Or if you expect to lose a credit or deduction you claimed last year, you can start considering other ways you can lower your tax burden to compensate. This may mean contributing more to your retirement plan or donating to charity. Being proactive makes it a lot easier to find everything you need when you’re ready to file your taxes next year.

Keep Receipts

You may be able to itemize your deductions, consider keeping all your receipts. When you itemize deductions, you can deduct the amount of sales tax you paid on goods throughout the year. Although the IRS provides a sales tax calculator that calculates a standard tax deduction. It based on your income and ZIP code. You may have spent more than the standard, especially if you made a large purchase. Likely buying a car or building a house, and paid sales tax on the supplies.

If you create a spreadsheet where you can enter the amount of sales tax on everything you’ve bought, it will ultimately save you a lot of time during tax season. This way, you’ll know whether you spent more than the standard tax deduction you’re eligible for.

Consider Storing Your Records Online

When you prefer to keep the amount of paperwork you acquire to a minimum, you can choose to store all your current and past tax information on your computer. Or — even better — online using a cloud service. You do store it on your computer, and be sure you make regular backups. If you subscribe to a cloud service, the information you store on your computer will automatically backup anytime you’re connect to the Internet, ensuring you never lose those records. If you have paper records, you can scan them and upload them onto your computer so you can store everything in one convenient location.

By getting organized now, you can save yourself a lot of time and more than a few headaches when the next tax season comes around. These tips on organizing tax records after you file will make the process a whole lot easier.

The post Organized Your Tax Paperwork appeared first on Flex Tax and Consulting Group (FTCG).

A deceased person’s estate is a separate legal entity for federal income tax purposes. If you’re the executor of someone’s estate, you may need to file an income tax return for the estate, as well as a final personal income tax return for the deceased person.

Filing an Income Tax Return for an Estate

Filing requirements, deductions for estate expenses, and more.

The executor must file a federal income tax return (Form 1041) if the estate has:

• gross income for the tax year of $600 or more.
• a beneficiary who is a nonresident alien.

What kind of income does an estate have? Common examples are rents from real estate in the estate, a salary that wasn’t paid to the deceased person before death, or interest on an estate bank account.

If you promptly distribute all the estate assets to the people who inherit them, the estate may not have income, and you may not need to file an income tax return for it. For instance, if the deceased person owned a house in joint tenancy with his spouse, and she had payable-on-death designations on his bank accounts, those assets will pass immediately to their new owners at death. They won’t generate income for the estate.

Form 1041: The Estate’s Income Tax Return

The income tax return form for estates is IRS Form 1041. It’s also called a “fiduciary” return because you file it in your capacity as executor of the estate. (An executor is a fiduciary that is, someone who entrusted with someone else’s money and has a legal duty to act honestly and in the best interests of the estate.) The Form 1041 return is similar to the personal income tax return, Form 1040, that we all file every April 15. There’s a “Decedent’s estate” box at the top of the form, which you should check.

The executor of the estate is responsible for filing a Form 1041 for the estate. The return is file under the name and taxpayer identification number (TIN) of the estate. On it, you’ll report estate income, gains, and losses, and will claim deductions for the estate. You don’t have to include a copy of the will when you file the return.

The Estate’s Tax Year

The estate’s tax year begins on the date on which the deceased person died. You, as executor, can file the estate’s first income tax return  which may well be it is last) at any time up to 12 months after the death. The tax period must end on the last day of a month. If you file in any month except December, the estate has what’s called a fiscal tax year instead of a calendar tax year.

Deductions

All estates get a $600 exemption. You can also deduct:

Distribution to beneficiaries

If you required to pay out the income on estate assets to beneficiaries, you can take a deduction for those amounts. To calculate the amount of the deduction, fill out Schedule B. The income distribution deduction determines the amount of any distributions taxed to the beneficiaries.

Executor’s fees

If the estate paid the executor, the amount can deducted from the estate’s income. The executor must report the fees as taxable income on his or her income tax return.

Expert fees

You can deduct reasonable amounts the estate paid to attorneys, accountants, and tax preparers.

Expenses of administration. The amount you spend to wrap up the estate to collect assets, pay debts, and distribute property to the people who inherit it is deductible. You don’t have to conduct a formal probate to have deductible expenses of administration, but if you do costs are likely to include probate court filing fees, the cost of publishing probate notices in the local newspaper (as required by the probate court), and the cost of buying a bond (a type of insurance policy that guards against your misuse of estate assets), if it’s required.

Miscellaneous deductions

Some other expenses can be deducted if they exceed two percent of the estate’s adjusted gross income. Examples are investment advice, safe deposit box rentals, office supplies, postage, and travel expenses.

You cannot deduct medical or funeral expenses on Form 1041. You may be able to deduct medical expenses on the deceased person’s individual income tax return.

Forms for Beneficiaries

If you distribute income to beneficiaries, they are responsible for paying income tax on it. When you file the estate’s Form 1041, you must give each beneficiary a Schedule K-1 form, showing how much the beneficiary received during the tax year.

Paying the Tax

The executor is responsible for making sure that the estate pays any income tax due. The tax paid from estate assets.

Flex Tax and Consulting Group has served and managed all types of tax and revenue collection for the U.S. for more than eight years. Our value-added services and solutions are based on innovative thinking that fits our valuable clients’ needs. If you have any questions, please don’t hesitate to contact us at 415-860-6288 or info@flextcg.com.

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