How long does the IRS have to audit my return?

The IRS may audit your federal income tax return for any reason within three years after filing the tax return. The correct phase that describes this timeframe is the statute of limitations. The statute of limitations is even greater if the IRS believes there is underreported gross income of 25% or more. If this is the case, then the IRS has up to six years after filing the tax return to launch an audit. In the event you file a fraudulent tax return or do not file a tax return at all, then there is no statute of limitations. In other words, they can haunt you forever and then some.

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What are the different types of IRS audits?

There are three main types of IRS audits. The simplest is the correspondence audit. You will get a letter from the IRS requesting that additional information be mailed to them and/or a proposed dollar amount that you owe and the reason stated. The second level of audit is the office audit. You will be requested to bring certain information to the IRS office for review. The most complete audits are called field audits and are conducted at your place of business. It is best to avoid these if possible. Once the agent is at your place, he or she has much more to see and ask about.

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How long should I worry if I have not filed prior year tax returns?

Bad news. Since a tax return was not filed, there are no statute of limitations that the IRS must follow. They can haunt you for life and any estate tax returns.

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When determining the support test for qualifying an individual as a dependent, what should be considered and what should not be considered as support?

The following is a list of some items that should be considered when determining the total amount of legitimate support:

• Food and Lodging
• Clothing
• Education
• Medical Care
• Medical Insurance Premiums
• Recreation and Entertainment
• Transportation
• Child-care expenses
• General Health and Maintenance
• Charitable Contributions made on behalf of dependent
• Gifts
• Allowances
• Wedding
• Expenses
• Other Various Miscellaneous Items

Some items that are not considered support when determining the total amount of legitimate support include:

• Savings or Investment Accounts
• Life Insurance Premiums
• Income Taxes Paid
• Funeral Expenses
• Scholarships

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Can you deduct the appraisal fee that is required when making a charitable deduction?

If you contributed property that has a fair market value greater than $5,000, tax law requires taxpayers to obtain a qualified written appraisal. Since the tax law requires this qualified written appraisal for a charitable deduction, good logic would say that the appraisal fee would also be classified as a charitable deduction. However, we are talking tax law. Tax law says that appraisal fees incurred for contributing property to qualified charities must be classified as a miscellaneous itemized deduction that is subject to the 2% of adjusted gross income limit. Go figure!

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I received the first and last month of rent from my rental property. Do I record the amounts received as taxable income?

Yes. Making the assumption that you are not a real estate dealer, on your Schedule E you must record all rent receipts received as taxable income even if it is for future periods. If this is not a tax advantage to you, then you might want to consider classifying the first and last months advanced rent as a deposit. Note that if the lease says that the amount called a security deposit is to be used as a final payment of rent, then it is considered advance rent and must be included in taxable income upon receipt. You really have some flexibility here. Everything should be clarified in the written lease contract. I also want to strongly emphasize that if you are not an attorney, do not write the lease contract. Shell out a few bucks and have an attorney experienced in this area to write the contract for you. Now, if a contract already exists and it says the funds are for first and last months rent, then it is too late and you are stuck with the tax consequences of the contract.

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I began renting small machinery and equipment this year, what tax forms do I need to complete for my federal individual income tax return?

If you are in the business of renting personal property, include the rental amount you receive in your gross receipts on Schedule C. The net earnings from this business would be subject to self-employment tax, which is 15.3% (12.4% social security tax plus 2.9% medicare tax). If the net earnings from this business were less than $400, you would not have to pay self-employment tax.

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If I have a business or rental asset placed in service, must depreciation be taken?

Absolutely. Depreciation is not an election. If you do not take depreciation, the IRS probably will not care since you are paying too much tax. However, the IRS will care when you dispose of that property that is not being depreciated. The IRS may say, I do not care if you depreciated it or not. The depreciation was allowed so the IRS will reduce your tax basis in the asset, thereby, increasing any gain or reducing any losses. The basis of the assets must be reduced by the depreciation taken or what is actually allowed.

If you have not taken depreciation, then you may be able to either file Form 3115 to claim a current year adjustment for depreciation that was not taken or file amended tax returns. 

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Are my membership fees and dues tax deductible?

It depends on the nature of the membership or dues. For example, amounts paid to organizations whose principal purpose is to provide entertainment to their members or other guest are generally not tax deductible. Examples include country club and athletic club dues. On the other hand, dues for trade or business associations are tax deductible as well as civic and service club dues. Examples of deductible expenses include membership for a chamber of commerce, Rotary, Kiwanis, Lions, and other professional and trade associations.

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Can I deduct auto registration fees as other property taxes?

Yes, you may deduct the registration fee as other property taxes providing that the following conditions are met: 

• Fee based on the value of property (i.e., Ad Valorem)
• Imposed on annual basis
• Fee charged on personal property
  

Not all states meet these three tests. So if there is any question, you can contact either your trusted local tax advisor or the vehicle registration department.

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