FAQ's - Frequently Asked Questions

Do I need a CPA to do my taxes or my small business bookkeeping?

Not as a general rule unless your business requires audited financial reports. In fact, our firm has the knowledge and state-of-the-art software used by the top CPA firms which provides professional individual and small business tax preparation; we are well qualified to provide monthly and year-end bookkeeping service. Additionally, we are able to provide services only available with Enrolled Agent status (click here to find our more information about Enrolled Agents).

What if I get a letter from the IRS or the Franchise Tax Board that I don't understand?

We can help decipher the "tax language" they use in their letters, and help you respond to any correspondence.

How can I find out more about the changes for this year?

Contact Canyon Tax & Bookkeeping to see which of the changes can potentially affect you or your business. We will be posting regular updates under "Tax Tips & Changes".

When should I start getting my tax records together for filing?

You should try to maintain a file with records that you will accumulate all year long, and review and add year-end documents in January.

I spend a lot of money on college for my child. How much is deductible?

The potentially deductible amount will be reflected in a 1099-T that you will receive from the school. This will include qualifying tuition and fees, but will not include room and board, books or other incidental expenses. How much of the total you spend actually translates to a deduction on your tax return depends on income thresholds, which year of college your child is in, and other variables. There are two different types of education credits to look at: the Hope Credit and the Lifetime Learning Credit.

What happens if I make a mistake on my return and the IRS doesn't catch it? Should I let it go?

If you find a mistake, rest assured that sooner or later, the IRS will also find it. You can always amend your return. If the mistake leads to additional tax due, the longer you wait, the more interest and penalty you will owe on the unpaid balance.

I know I'll get a refund, but I haven't filed in a few years. How long do I have to collect?

If you haven't filed, and you know you'll get money back, do it now! You have three years, plus the current year [for example: 2000, 2001, 2002 plus current year 2003] to collect any refund. Prior to that time frame, you still need to file, but you will forfeit your refund.

A friend told me that as long as I was married for 6 months, I could file as Married Filing Joint. My divorce was final on December 1. What is my filing status?

Your filing status is determined by your legal status on the last day of the tax year, i.e. December 31. You will have to file as Single or Head of Household if you qualify for that filing status.

My 10 year old daughter lives with me most of the year, but goes to visit her father for the summer and usually a couple of weeks at Christmas. He claims her as a dependent in the terms of the divorce. What is my filing status?

You can probably file as Head of Household because your daughter lives with you for more than half the year. Your preparer can help you decide if this status is appropriate, but it would be much more beneficial than filing as Single. She does not have to be claimed as your dependent in order to file as Head of Household.

My wife and I are still married, but we are living apart. Should I be filing as Married Filing Separate?

Only if you have no other option. MFS is the least beneficial filing status, and there are many tax deductions and credits you cannot take advantage of with this filing status. If you are able to work together on the taxes at all, Married Filing Joint would most likely give you a more advantageous tax return for both of you.

I donated a lot of clothes and furniture this year, but I don't have any idea how much I paid when I originally bought them or what the current value is. What do I do to claim the items in the charitable deduction part of Schedule A?

Make a list to attach to the receipt from the charity to which you donated the items. On that list, make a column for the current, or fair market value, and a column for your best estimate of the original cost. Remember, the IRS is concerned with "reasonable" amounts. That means that whatever you originally paid, after time and usage, the item is probably not worth a huge sum. Be honest with yourself as to how much you could pay for it in a thrift shop or at a garage sale. You don't want an overblown or unreasonable estimate to flag your return for possible examination. Some charitable organizations such as Goodwill Industries provide guidelines which are very useful in determining the current value of various used items.