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What does the cash-basis accounting method mean? This means that you report (deduct) your expenses in the year you paid them. It also means that you report your income in the year you actually receive it. Individual taxpayers use the cash basis accounting method while reporting their income taxes.
What is a barter income? Do I report it? Barter income is when you receive something (service or property) instead of cash as payment of a debt owed to you. It also includes you performing a service for someone else in exchange for receiving something other than cash. In technical lingo, it is an exchange of property or services. No cash is involved. For instance, you do some graphic designing for someone in exchange for free advertisement in his or her publication. Both you and the other person involved in the barter exchange must agree upon a favorable value for the services exchanged. This value must be reported on Form 1099 (Proceeds from Broker and Barter Exchange Transactions). Yes, you report this income on your federal income tax return.
I owe my landscaper money and gave her a note instead of cash. Can I deduct that? No. Only when you actually pay cash for an expense can you deduct it. Also, your payment must be made within the current tax year – January 1 to December 31, 2007.
How long do I need to keep my records? 3 years is the general timeframe for keeping your records. This is because the IRS generally has three years from the date you file your original income tax return to audit it. It is recommended to keep for longer than this, however, since other situations may arise. For instance, if you are suspected of tax fraud, there is no limit on the amount of time the IRS can go back to investigate your records (statute of limitations). If you own real property, keep any tax documents relating to the basis of the property for as long as you own the property. This applies for any property you own, actually. Keep the associated records for as long as you own the property. If you own any IRAs, mutual fund accounts, or stocks, keep the transaction records/documents associated with them for as long as you own the items. This includes contributions and distributions, dividend reinvestment, and stock purchases.
|Jennifer Mathes, Ph.D.|