Dorothy C. Borchardt        

CERTIFIED PUBLIC ACCOUNTANT          

Accounting & Tax Services            

Table of Contents

General Questions:

Individual Tax Questions:

Business Tax Questions:

General Questions:

Why Should I Choose a CPA?

These are terms which aptly describe certified public accountants, professionals who are uniquely qualified to help you increase your personal net worth or improve your business' bottom line.  Although many people use the terms accountant and CPA interchangeably, there is a big difference.

CPAs are required by law to have a college degree, pass a rigorous two-day exam, and complete a work experience requirement prior to certification.  In addition, continuing education is required of CPAs who wish to maintain an active license, insuring that the highly skilled professionals stay on the cutting edge of changes in the accounting field.  

Achieving CPA status takes diligence, intelligence, integrity and commitment.  As a result, not all accountants are CPAs.

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Individual Tax Questions:

Do I need to pay estimated taxes?

Estimated tax payments are generally required if the estimated tax due after federal income tax withholdings will be $1,000 or more; unless your withholdings and estimated payments will cover at least 90% of the tax shown on the current year return or 100% of the tax shown on the prior year return (110% if the adjusted gross income was more than $150,000).

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How much money can I put into a Coverdell Education Savings Account?

The maximum amount per beneficiary is $2,000 and can be funded before the original due date of the return (April 15th).  These funds can be withdrawn tax-free to pay for kindergarten through college education expenses.

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What is a 529 Plan?

A 529 plan is a state-sponsored college savings program that is available to all taxpayers, regardless of income level and provides tax-free advantages if payouts are used to cover eligible higher education expenses.  Typically, a 529 plan offers several investment alternatives, including selected equity mutual funds.  Also, most college savings account plans now welcome out-of-state investors, so you can shop around to find the program you like best.   For the complete internet guide to state-sponsored college savings plans, see www.savingforcollege.com.

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How long do I need to keep certain records?

In general, a good rule of thumb is to keep all tax records for at least 7 years after the return is filed.  These tax records include, among other things, the tax return, W-2s, 1099s, and support for deductions.  If the tax return was complicated, it should be kept permanently.  Investment information and home ownership documents should be kept for the period of ownership plus an additional 7 years.  Items related to your retirement, divorce or estate should be kept permanently.  For additional information, the IRS provides a Recordkeeping for Individuals guide.

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Can I exclude the gain on the sale of my home?

The gain on the sale of your primary residence may excluded in full up to $250,000 ($500,000 if married filing jointly) if you owned the residence for at least 2 of the preceding 5 years, used it as your primary residence for periods adding up to at least 2 years within the 5-year period ending on the date of the sale, AND you must not have used the exclusion for the 2 years preceding the date of the current sale.

If you do not meet all of these tests for full exclusion, you may be eligible for partial exclusion if the reason was due to a change of employment, health, or unforeseen circumstances.

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What costs can I deduct when I purchase a home?

Some costs paid by your, the buyer, may be deductible, added to the basis of your home or treated as a payment for services.  Real estate taxes are deductible on your Schedule A if you itemize deductions for the portion of the property tax year the home is owned.  Any tax amount paid by the seller on your behalf without reimbursement reduces the basis of your home.  Points, which are a form of prepaid interest, generally must be spread out and deducted over the life of the loan.  Any additional fees charged by the mortgage lenders are treated as payment for services and not deductible.  Loan origination fees, however, are deductible as interest.  Attorney, appraisal, title fees, recording fees, and transfer taxes are added to the basis of your home.

You, as the buyer, should keep track of any expenditure adding to your home's basis, especially if a future sale of your home could result in a gain exceeding $250,000 ($500,000 if married filing jointly ).

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Business Tax Questions:

How long does my business need to keep certain records?

In general, all business tax records should be kept permanently.  These tax records include, among other things, the tax return and supporting documentation for the income and expenses.  Additionally, the chart of account, general ledger, fixed asset records and any corporate records should be kept permanently.  Bank records, accounts receivable, accounts payable, inventory records, sales records, and employment files should be kept for at least 7 years.

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Can I deduct my home office?

You may deduct your home office space IF it is used exclusively and regularly as a principal place of business, as a place to meet or deal with clients in the normal course of business, OR if the space used in connection with the business is a separate structure from the residence.  "Exclusive use" means the space is only used for business purposes and "regular use" means that the space is used for business on a continuing basis.

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What substantiation do I need for travel & entertainment expenses?

You must maintain adequate records or provide sufficient evidence to substantiate the amount of expense, the time and place of the expense, the business purpose of the expense and the business relationship to the taxpayer of the persons involved.  In addition, any expense greater than $75 requires a written receipt.

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These ANSWERS are provided for general information purposes only and are not intended to be used as professional tax advice. Each individual or business tax profile is unique and other opportunities may be better suited to your particular situation.  Please consult with us on how this information might apply to you. 

Dorothy C. Borchardt, CPA   Phone: 610-692-0885   Email: db@db-cpa.com

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