October 2012  Tax Tips from Smith, Sullivan & Company P.C.

 

Receiving a notice from the Internal Revenue Service  
can be pretty scary.

Have You Received an IRS Notice?  

In the event that an IRS letter or notice shows up in your mailbox, contact us immediately if you have questions or are unsure of what the next step is. We can alleviate your fears!

1.  Don't panic. 
Many of these letters can be dealt with very simply.

2.  You're probably not in trouble.
IRS notices normally cover a very specific issue about your account or tax return. The notice may request payment of taxes, notify you of a change to your account or request additional information. Fax us a copy, we'll review the notice with you.

3.  The IRS is usually very specific about how you can correct a problem.  Each letter and notice offers detailed instructions on what you need to do to satisfy the inquiry. Sometimes, though, these instructions can still be a bit tricky - contact us if you have questions regarding IRS instructions.
 
4.  Always keep a copy of your most recent tax returns handy. 
If you receive a notice about a correction to your tax return, you should review the correspondence and compare it with the information on your return. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

5.  If you disagree with the IRS let them know as soon as possible to avoid late fees. 
If you do not agree with the correction the IRS made, it is important that you respond as requested. Again, fax or send us a copy, call with questions so that we can help you respond to the IRS in writing to explain the disagreement. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. When the information is mailed back to the IRS, allow at least 30 days for a response from the IRS.

7.  Be sure to ask us questions if there is any confusion with your notice. 
Most correspondence can be handled in a reasonable amount of time. However, if you still have questions, call us before contacting the IRS. If you choose to call the IRS directly, have a copy of your tax return and the correspondence available.

8.  Hold onto IRS notices or letters, at least for a few years.
Keep copies of any correspondence with your tax records. 

 

     
Renting Your Vacation Home

You may already know that income you receive for the rental of your vacation home must be reported on your federal income tax return. But, did you also know that if you rent the property for only a short time each year, you may not be required to report the rental income?
The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat: 

 

Rental Income and Expenses  
Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss. 

Limitation on Vacation Home Rentals  
When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income. You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. 

For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.

Special Rule for Limited Rental Use  
If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.    
 
IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), is available at www.IRS.gov. 

 

 
 
 
     
Linda Smith and
Maureen Sullivan
Questions?  Call us at 508.871.7178

or email: contact@smithsullivancpa.com 

or go to:  www.smithsullivancpa.com 

 

 

At Smith, Sullivan & Company, PC, our dedicated professionals listen to your auditing and accounting, tax preparation, and small business questions. We provide personalized solutions to you and your family, your business or nonprofit, all at a reasonable price.

 

Our accounting team has extensive experience. We understand your frustration when you tell us that you've paid top dollar for accounting services - only to learn that there's a junior-level person working on your engagement. Or, that it's mid-March and your accountant isn't returning emails or phone calls because your files have been put on the back burner so that they can focus on the tax return crunch. At Smith, Sullivan & Company, PC we only send senior-level accountants into the field and they remain accessible to you throughout the year. A dedicated team is assigned year-round specifically to our nonprofit clients, so that deadlines are met on time and your questions are never ignored.

 

Established in 1993, Smith, Sullivan & Company, PC is for you if you value communication, one-on-one attention, and "hands-on" expertise from experienced senior-level accountants. Whether you have a project to bid on now, or in the near future, contact us to schedule an introductory meeting, we'd love to meet you!   

 

 

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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication and any attachments is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter addressed herein.