I often get asked. How long should I keep my tax records? According to the IRS, generally they can look back at returns within the past three (3) years. However, if there is a large error or suspicions of fraud, the IRS can go back further. Overall, the IRS does not go back any further than six (6) years.
Even though there is not an exact answer, I would recommend keeping at least the past seven (7) years of tax returns and documentation. When it comes to the IRS, better safe than sorry.
32% of Adults Prefer TikTok for Financial Information
This is one of my favorite stats when I discuss the power of social media - in 2022 more people used TikTok as a search engine than Google. Read that again. Social media is being utilized by people to search for specific information and news.
As a result - 32% of adults said they prefer TikTok as their primary source for financial information.
This is equal parts incredible and terrifying.
Incredible because it’s an easy way to disseminate information to the masses, and terrifying because it’s an easy way to disseminate information to the masses.
Unsurprisingly, there's a tsunami of non-financial experts giving out financial and tax advice. And with the right catchy-verbiage, graphics, and music, a lot of this advice ends up going viral, and a lot of it is wrong.
That’s why it’s incredibly important to understand the credentialing and fiduciary responsibilities of those you take financial and tax advice from. Random dude with a microphone on a video talking about how he wrote-off his G-Wagon is not someone you want to go to for this information. Please only look to professionals for this type of advice because they’ll be able to apply it in a legal way to your specific situation and all the nuances that go along with it, unlike Mr. G-Wagon who is just trying to get likes and sell you his day-trading course.
Activate Your IRS Account
For whatever reason - I don’t find this is well-known among the general population. You can create an account/login with the IRS which allows you to see tax filing transcripts, verify income data, see notices, taxes due, etc.
Usually what’s required to create one is verification of prior-year tax return data filed.
Another huge new feature that has us tax-pros all excited is the ability for clients to approve POA’s (power of attorney’s) through their portal. This little form is what allows us to speak to the IRS on your behalf. Previously - these had to be faxed or mailed in.
Potentially with the increased funding - the portal will continue to become more useful for both taxpayers and tax pros alike. Regardless - activate your account NOW so it's ready to go for the 2023 filing season.
No, A Kid’s Allowance is Not Earned Income
We’ve all heard about how the magical train to wealth for generations to come is getting a Roth retirement account set up for your child and contributing the maximum amount yearly.
The hiccup with this - is that your child has to have EARNED income to contribute to a Roth, and no, an allowance does not constitute earned income.
Earned income includes things such as wages, salary, commissions, tips, bonuses, self-employment income, taxable non-tuition, stipend payments, and nontaxable combat pay (this goes for adults as well as kiddos). As you can see, “allowance” from their parents is not part of this. Nor are things like passive income - such as interest or dividends earned.
wELl hOw WoUlD tHe iRs eVeN kNoW? First off - stop trying to commit tax fraud. Second off - through matching of IDs. When you have a Roth, certain forms are submitted which include information of the holder of the account, such as their SSN. All those types of earned income are submitted via third parties to the IRS, so the IRS will know in most instances if you have earned income or not.
Luckily - there is now a workaround to contributing to a Roth for a child without the need for earned income.
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