There are changes to 2011 tax laws to keep in mind when filing taxes this year

CINCINNATI - The tax season has arrived.

Preparing taxes can send many people into a panic, but attorney and Certified Public Accountant William Hesch says with proper tax records, you can avoid worrying about an IRS audit.

Hesch lists several tax preparation tips to help you get the most out of your 2011 taxes.

Taxpayers planning to prepare their 2011 Personal Income Tax Returns need to be aware of the IRS record keeping requirements. Documentation should be obtained before the 2011 tax return is filed and must be kept in the event your tax return is selected for audit by the IRS.

1. Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is being subject to closer IRS scrutiny since last year over $13 Billion was erroneously paid out. New IRS regulations require tax preparers to follow specific due diligence requirements when preparing EITC returns. Taxpayers can expect more questions to be asked by their tax preparers and documentation may be necessary such as who the child lived with during the year and proof of relationship with the child.
For self-employed taxpayers, the IRS requires taxpayers to report all business income and allowable expenses. If a taxpayer fails to keep proper books and records, the IRS may disregard reported Schedule C income and disallow the EITC if the taxpayer fails to claim all allowable expenses.

2. Charitable Donations

The documentation requirements for taxpayers to deduct charitable contributions have changed in recent years to require more record keeping.

a. Cash Donations of any amount requires a bank record including cancelled check or credit card statement or a written receipt from donee indicating the donee's name, contribution amount and date.
b. If contributions of $250.00 or more are made, the donation is required to be substantiated by a contemporaneous written acknowledgment indicating.
    i. Amount of cash contributed or description of property.
    ii. Descriptions and good faith estimate of value of any goods or services with more than an insubstantial       value received in exchange for contribution.
    iii. If donee provides any intangible religious benefits, a statement to that effect.
c. Non-cash donations of less than $250.00 require the taxpayer to obtain a receipt from donee indicating donee's name, date and location of donation and a description of the property donated.
d. Non-cash donations of more than $500.00 requirement must include with its return for the tax year of the contribution a written description of the property and must
be described in Section A of Form 8283. If the contribution is over $5000.00, an appraisal is required and Section B of Form 8283 must be completed.

3. Business Expenses

Business expenses that are deducted on a taxpayer's personal income tax return must be substantiated by receipts, sales slips, invoices, canceled checks or other evidence of payment. Beware - credit card receipts are not adequate substantiation. In addition, there are many special rules that need to be researched and understood for:
a. Travel away from home overnight
b. Car
c. Meals
d. Entertainment
e. Club Dues
f. Business Gifts
One Important exception is that the documentary evidence such as receipts or paid bills is not generally required for expenses that are under $75.00 (i.e.: meals and entertainment).

4. Tax Basis for Stocks Sold

Starting in 2011, if a taxpayer sells certain securities, their broker is required to report the sale of the securities to the IRS and disclose the taxpayers adjusted tax basis of the securities sold. The broker must generally determine adjusted basis under the first-in, first-out method. However, taxpayers may use alternative methods to compute the adjusted basis to be reported for 2011 as well as future years. Taxpayers need to discuss the alternative methods with their tax advisor and broker and verify that their broker has reported the proper adjusted basis to the IRS for your 2011 stock sales.
Conclusion:

Taxpayers need to carefully work with their tax advisors to make sure proper documentation and records are being gathered and retained prior to the preparation of their 2011 personal tax returns.

If you gather the proper records to substantiate your taxable income, deductions and credits, then you should have peace of mind and not worry about being audited by the IRS.

**For access to a comprehensive online copy of the 2011/2012 Tax Planning Guide, go to www.heschcpa.com.

The tax planning guide provides tax planning tips for individuals and business owners. To find answers to your estate tax and elder law questions go to cincinnatilaw.tv where William E. Hesch is the estate planning attorney who provides answers to your questions.**