4 Common Individual Tax Questions We Get From Clients

Are You Eligible for the Research & Development Tax Credit?Despite claims of tax simplification, our clients ask us many tax-related questions throughout the year – some more often than others. Below are answers to four of the individual tax questions we get the most.

1. Can I deduct home office expenses?

Individuals who have a business and use part of their home for that business may be able to deduct certain expenses related to their home office. Many do not claim the deduction because they fear an IRS audit, but these are valuable and legitimate deductions if you qualify.

First, the home must be the principal place of business and the portion of your home that is used for business must be used exclusively and regularly for conducting business. You can then deduct the business use percentage of certain expenses such as utilities, real estate taxes, mortgage interest, insurance, repairs, depreciation of your home, etc. If you are an employee, you may also qualify; however, additional restrictions apply.

2. When will I receive my refund?

The IRS website says you should receive your refund within 21 days of filing your return. However, in recent years it has been taking much longer. Because of rampant tax fraud and identity theft, the IRS has been delaying refunds in order to perform additional safeguards. Identity thieves generally file electronically and file early so they can get the claimed refund before the real taxpayer files their legitimate return, which would raise a red flag with the IRS. Therefore, the IRS performs various verifications on filings, checking for changes that could highlight a fraudulent return.

You can view your refund status on the IRS website 24 hours after e-filing or 4 weeks after mailing a paper return.

3. How long should I keep my tax records?

In today’s digital world, it is easier to keep tax records for long periods of time without taking up a lot of physical space. However, that doesn’t necessarily mean you should keep everything forever. The statute of limitations for filed tax returns, in general, is three years. That means the IRS has three years to audit your return unless they can show you underreported your income by more than 25 percent, in which case the statute is six years. If the IRS can show that you committed fraud, then there is no statute and they can audit you at any time.

In most cases, you should be okay if you keep tax records for at least three years. This would include W-2’s, 1099’s, brokerage statements, K-1’s etc. A copy of your actual tax return should be kept indefinitely, as well as records to support purchases and improvements of real estate that you still own for purposes of establishing basis.

4. How will the new tax law affect me?

This is a loaded question, because the answer is different for everyone. The new law requires a careful analysis of each individual’s situation. However, there are some common themes.

First, for employees, it is important to re-evaluate your withholding to make sure you are on track for the current year. The new law made changes to the withholding tables, so it is important to revisit your W-4.

Additionally, because the standard deduction has doubled, many more taxpayers will likely be claiming it rather than itemizing. This may make it easier to accumulate your information for filing your return for 2018; however, there may be some strategies to employ before year-end to make the most of the law changes. For example, it may make sense to bunch deductions such as charitable contributions into one year so that you can itemize this year, and then take the standard deduction in intervening years.

As always, we are here to help with whatever tax questions are on your mind.

Susan P. Stutzman can be reached at Email or 215.441.4600.

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