September 15th, 2022 | Miller Advisors

Tax Tips: Record Keeping, Gifting and IRS Accounts

Homeowner Records: What to Keep and How Long

Keeping full and accurate homeowner records is not only vital for claiming deductions on your tax return, but also for determining the basis or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis.

Here are a few examples:

  • Putting an addition on your home
  • Replacing an entire roof
  • Paving your driveway
  • Installing central air conditioning
  • Rewiring your home
  • Assessments for local improvements
  • Amounts spent to restore damaged property

In addition, you should keep track of any decreases to the basis such as:

  • Insurance or other reimbursement for casualty losses
  • Deductible casualty loss not covered by insurance
  • Payment received for easement or right-of-way granted
  • Value of subsidy for energy conservation measure excluded from income
  • Depreciation deduction if home is used for business or rental purposes

How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. You must also keep these records for as long as they are important for the federal tax law.

Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. A period of limitations is the limited period of time after which no legal action can be brought.

For assessment of tax, the period of limitations is generally three years from the date you filed the return. When filing a claim for credit or refund, the period of limitations is generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date.

You may need to keep records relating to the basis of property longer than the period of limitations. For example, basis is needed to determine gain on home sale. Any gain on sale of a home is tax-exempt for amounts up to $250,000 ($500,000 for married couples). Basis is also important in figuring casualty loss, on conversion of the home to business use, or where there’s a gift of the home (in this case, it is important to the donee). You should keep these records for as long as needed because they are important in figuring the basis of the property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.

Tips To Help You Figure Out if Your Gift Is Taxable

If you’ve given money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but exceptions exist. Because gift tax laws can be confusing, here are seven tips you can use to figure out whether your gift is taxable.

1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. In 2022, the annual exclusion amount is $16,000.

2. Gift tax returns do not need to be filed unless you give someone other than your spouse money or property worth more than the annual exclusion for that year.

3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift.

4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. For example, the following gifts are not taxable:

  • Gifts that do not exceed the annual exclusion for the calendar year,
  • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
  • Gifts to your spouse,
  • Gifts to a political organization for its use, and
  • Gifts to charities.

6. You and your spouse can make a gift of up to $32,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting.

7. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

What To Know About IRS Online Accounts

Setting up an IRS Online Account is an easy and secure way for taxpayers to quickly get information about their IRS activity, such as any tax due balance, payments made, and tax records for the past several years. Taxpayers should be aware that balances update no more than once every 24 hours, usually overnight, and should also allow 1 to 3 weeks for payments to show up in the payment history.

Setting up an IRS Online Account allows you to view:

  • The payoff amount, which is updated for the current day
  • The balance for each tax year for which you owe taxes
  • Your payment history
  • Key information from the most current tax return as originally filed
  • Payment plan details if you have one
  • Digital copies of select IRS notices
  • Economic Impact Payments if you have received any
  • Your address on file

Taxpayers can also use their online account to:

  • Select an electronic payment option
  • Set up an online payment agreement
  • Access tax records and transcripts
  • Approve and electronically sign Power of Attorney and Tax Information Authorization
  • Requests from your tax professional

Here’s how new users get started:

  1. Select “View Your Account” on IRS.gov homepage.
  2. Select the “Create or View Your Account” button.
  3. Click “Create Account.”
  4. Pass Secure Access authentication. This is a rigorous process to verify the taxpayer’s identity. You must be able to authenticate your identity to continue.
  5. Create a profile.

All password-protected online IRS tools for taxpayers are protected by multi-factor authentication. Once the initial authentication process is complete, returning users can use the same username and password to access other IRS online services such as Get Transcript and Get An Identity Protection PIN, if applicable.

Please reach out to our office should you have any questions about this information.

Article Sources: Rebecca R Braun CPA, PS
Photo Source: iStock