Since recent real estate prices have dropped, many people have purchased new property to use as rental property. As you can guess, there are many tax rules that are applied to income made off of rental property. Below is a list of rules and tips to help make sure your rental income is allocated correctly on your income tax return.

• Any rent you receive in the current tax year is included in your income for that current year.
  • If you received the rent check for January 2011 in December 2010, that income will be included on your 2010 income tax return, despite the fact that its for 2011.
  • If you receive the first and last month’s rent upon a new tenant moving in, all of those funds are included in the current year income, even if the last month’s rent will actually be applied in another year.
• Bartering is income and, as such, must be shown as income.
  • Example, if the tenant agrees to maintain the lawn, show the value of that service as income. What would you pay a lawn service to do that service? (At the same time, you may also deduct that amount as a rental expense.)
• If your tenant pays any home upkeep expense (such as having the air conditioner fixed) and then deducts the expense from their rent, you must still show the full rent as having been paid and then write off that maintenance expense against it.
• Deposits that are non-refundable (for example, a pet deposit or a cleaning fee) are included in the income for the year that deposit is received.
• Deposits that may be refunded, such as a security deposit, does not need to be claimed as income as you will be returning that deposit to the tenant upon the end of the lease.
• When your tenant signs a lease with an option to purchase the property, all the payments are still rental income. However, once the tenant decided to buy the property, all payments received after the sale become part of the selling price.
• If your tenant breaks their lease and pays you to do so, that payment is rental income.
• Tip: if you rent out a room in your personal residence for less than 15 days, you do not need to include that rent you receive in your income. However, if you rent the room out for more than 15 days, it IS considered income.
• Keep all lease agreements and tenant applications! If you happen to be audited, those records will verify that the property is rental property. Keep receipts for all rental expenses that you deduct on your tax return to also prove your deductions are accurate.

Have you ever worked for tips? Or has anyone close to you ever worked for tips? If so, you’ve probably heard the biggest myth of them all, “Oh, tips are under the table! You don’t have to report them!”

Let me sum this up in one word: WRONG!

Here are four tips about tip income that you need to know. Write these down. Share them with people you hear spreading the “myth” I mentioned above about tips. Give them to someone with a tip on the table at the restaurant. You could end up saving them money and headaches down the road.

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.
2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.
3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

For more information on tips and tip reporting, check For more information see IRS Publication 531, Reporting Tip Income, as well as Publication 1244. Both are available at http://www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676)

Source: IRS Tax Tip 2011-14

Did you know that there are two federal tax credits available to help you offset the costs of higher education for yourself or your dependents? Yes!  There is the American Opportunity Credit and the Lifetime Learning Credit.

You must pay postsecondary tuition and fees for yourself, your spouse or your dependent to be able to qualify for either of these credits, which may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent on their parent’s return, the student cannot file for the credit.

For each student, you can choose to claim only one of the credits in a single tax year. In other words, you can’t claim the American Opportunity Credit to pay for part of your child’s tuition charges, and then at the same time claim the Lifetime Learning Credit for $2,000 more of  that child’s school costs.

However, if you happen to have multiple children in college, and you pay expenses for all of those students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your freshman son and the Lifetime Learning Credit for your junior daughter.

Here are some key facts the IRS wants you to know about these valuable education credits:

The American Opportunity Credit

• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of post-secondary education. (So if your student is on the 5-year plan, that last year does not qualify.)
• Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
• The student must be pursuing an undergraduate degree or other recognized educational credential.
• The student must be enrolled at least half time for at least one academic period.
• Qualified expenses include tuition and fees, coursed related books supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.

Lifetime Learning Credit

• The credit can be up to $2,000 per eligible student.
• It is available for all years of post-secondary education and for courses to acquire or improve job skills.
• The maximum credited is limited to the amount of tax you must pay on your return.
• The student does not need to be pursuing a degree or other recognized education credential.
• Qualified expenses include tuition and fees, course related books, supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.

Note!! You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit.  You will want to do your research, of talk to a tax professional, to choose to either take the credit or the deduction based which is more beneficial for you.

Source: IRS Tax Tip 2010-12

Many taxpayers know tax season is upon them when they receive their tax forms from the IRS in the mail. However, this year, those tax forms will not be coming.

With more and more taxpayers filing electronically (almost 99  million returns last year!), the IRS has decided to save money by not automatically mailing tax forms to individuals and businesses. Instead, taxpayers will have to find other means of obtaining the forms needed to file their 2010 income tax return.

If you need/want paper tax forms, they can be ordered through the IRS website. You can download them electronically in pdf form, or you can request they be mailed to you via USPS.

The IRS does acknowledge that some taxpayers may not have access to the internet and the IRS website. In cases such as that, you can pick up forms at your local library, other community offices or the post office. (Note, the Cameron, TX Post Office does not have forms available this year.)

Here are Schoppe’s Bookkeeping & Tax Service, Inc., we have a limited number of blank 1099 and W-2 forms available for anyone who may need them. However, as for the Form 1040 needed to file your return, we highly recommend electronic filing instead.

Source.

We’ve updated our downloads page with this year’s tax organizers and client information forms. We welcome everyone to use these forms to help you do the early steps in gathering your information for your 2010 Income Tax return.

Right click and “Save file as” on all of these items!

If you opt to have your tax return prepared professionally, you will want to choose your tax preparer with care. Did you know that taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else? Yes, much like your health is your own even when you go to the doctor, your tax return is your own responsibility even if you go to a professional preparer. So, it is important to choose carefully when hiring an individual or firm to prepare your return.

Most return preparers are professional, honest and provide excellent service to their clients. Their reputation with the public as well as with the IRS is at stake with every return they file. However, there are a few points you want to keep in mind before you hand over your private tax documents for filing.

The IRS recommends:

1.     Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics. New regulations require all paid tax return preparers including attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number — even if they already have one — before preparing any federal tax returns in 2011.

2.     Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.

3.     Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers. Remember, any “doctoring” of your return to get a larger refund WILL eventually can’t up with YOU.

4.     Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise. Often, letters from the IRS regarding questions with your return won’t appear until mid-summer. You will want your tax professional to help you handle the IRS inquiry.

5.     Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items. The more that tax professional knows about you, the better job they can do in filing your return.

6.     Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form. Your signature means you agree with everything on the tax form.

7.     Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it. If your preparer does not give you the option to look over your return prior to signing and filing, take your information and find someone who will!

8.     Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.The preparer must also give you a copy of the return.

You can report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from http://www.irs.gov or order by mail at 800-TAX-FORM (800-829-3676).

Other handy links:

• Form 3949-A Information Referral (PDF 94K)
• The Office of Professional Responsibility (OPR)
• Where Do You Report Suspected Fraud Activity?