Ask The Expert #6
Q. I will soon be receiving an inheritance. Will it be taxable?
A. Generally, inheritance is not taxable. However, if you inherit a retirement account, it may be taxable. Money contributed to a conventional IRAs and 401(k) is generally not taxed before it is put in. Consequently, it becomes taxable income when it is taken out.
Q. I have tax returns and receipts for over 20 years. When is it safe to throw them away?
A. That depends on your particular situation. In general, you should keep your records for at least three years after the filing date of your return. However, there are scenarios where you need to keep them much longer. If you are depreciating an asset, you will need to be able to prove the cost if you are audited. As an example, if you have a rental house, it is depreciated over 27 ½ years. You may need to be able to prove how much you paid for it for up to 3 years after it has been fully depreciated. If your income is understated by more than 25%, the IRS has 6 years to audit your return. There are other exceptions, but for most people, without businesses, it is 3 years.
Q. I drive almost 30 miles a day to go to work. Is there any way I can deduct it on my tax return.
A. If you have a business with an office in the home, you could deduct it. But if you are a W2 employee, commuting to work and back is not deductible. Additionally, with the 2018 tax changes, all employee business expenses have been eliminated.
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