Tax document retention guidelines for small businesses

You may have breathed a sigh of relief after filing your 2017 income tax return or extension. But if  your office still strewn with reams of paper consisting of years’ worth of tax returns, receipts, canceled checks and other financial records or if your computer  is filled with a multitude of digital tax-related files, you probably want to get rid of what you can. Follow these retention guidelines as you clean up.

General rules

Retain records that support items shown on your tax return at least until the statute of limitations runs out which is generally three years from the due date of the return or the date you filed, whichever is later. This means you can now potentially throw out records for the 2014 tax year if you filed the return for that year by the regular filing deadline. But some records should be kept longer.

For example, there’s no statute of limitations if you fail to file a tax return or if you file a fraudulent one. So you’ll generally want to keep copies of your returns themselves permanently, to show that you did file a legitimate return.

Also bear in mind that, if you understate your adjusted gross income by more than 25%, the statute of limitations period is six years.

Some specifics for businesses

Records substantiating costs and deductions associated with business property are necessary to determine the basis and any gain or loss when the property is sold. According to IRS guidelines, you should keep these for as long as you own the property, plus seven years.

The IRS recommends keeping employee records for three years after an employee has been terminated. In addition, you should maintain records that support employee earnings for at least four years. (This timeframe generally will cover varying state and federal requirements.) Also keep employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.

For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations period.

Regulations for sales tax returns vary by state. Check the rules for the states where you file sales tax returns. Retention periods typically range from three to six years.

When in doubt, don’t throw it out

It’s easy to accumulate a mountain of paperwork (physical or digital) from years of filing tax returns. If you’re unsure whether you should retain a document, a good rule of thumb is to hold on to it for at least six years or, for property-related records, at least seven years after you dispose of the property. But, again, you should keep tax returns themselves permanently, and other rules or guidelines might apply in certain situations. Please contact us with any questions.

SHRED DAY IS COMING SOON!
We’ll have a “shred truck” parked in our lot for the day
and you can watch as your old documents are destroyed.
It will be an enjoyable and satisfying experience.
We’ll keep you updated via
our Social Media Pages:  FacebookTwitter and LinkedIn
our website:  LawrieCPAGroup.com
and the email address we have on file for you.

If you would like to verify or update your email address or any other contact information, please send an email to:
info@lawriecpagroup.com
with the subject line:  Contact Info

Or give us a call at:  317-886-7456

Individual tax calendar: Important deadlines for the remainder of 2018

 

While April 15, April 17 this year, was the main tax deadline on most individual taxpayers’ minds, there are other deadlines through the rest of the year that you need to be aware of. To help you make sure you don’t miss any important 2018 deadlines, here’s a look at when some key tax-related forms, payments and other actions are due. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you.

Please review these dates and let us know if you have any questions about the deadlines or would like assistance in meeting them.

June 15

  • File a 2017 individual income tax return (Form 1040) or if you live outside the United States, file for a four-month extension (Form 4868), and pay any tax and interest due.
  • Pay the 2nd installment of 2018 estimated taxes (Form 1040-ES), if not paying income tax through withholding.

September 17

  • Pay the 3rd installment of 2018 estimated taxes (Form 1040-ES), if not paying income tax through withholding.

October 1

  • If you’re the executor of an estate or the trustee of a trust, file an income tax return for the 2017 calendar year (Form 1041) and pay any tax, interest and penalties due, if a five-and-a-half month extension was filed.

October 15 

  • File a 2017 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest and penalties due, if a six-month extension was filed (four-months if filed by a taxpayer living outside the United States).
  • Make contributions for 2017 to certain retirement plans or establish a SEP for 2017, if a six-month extension was filed.
  • File a 2017 gift tax return (Form 709) and pay any tax, interest and penalties due, if a six-month extension was filed.

December 31

  • Make 2018 contributions to certain employer-sponsored retirement plans.
  • Make 2018 annual exclusion gifts (up to $15,000 per recipient).
  • Incur various expenses that can potentially be claimed as itemized deductions on your 2018 tax return. Examples include:  charitable donations, medical expenses and property tax payments.

But remember:  some types of expenses that were deductible on 2017 returns won’t be deductible on 2018 returns under the Tax Cuts and Jobs Act, such as unreimbursed work-related expenses, certain professional fees, and investment expenses. In addition, some deductions will be subject to new limits. Finally, with the nearly doubled standard deduction, you may no longer benefit from itemizing deductions.

Tax record retention guidelines for individuals

Which 2017 tax records can you shred once you’ve filed your 2017 return? The answer is simple: none. You need to hold on to all of your 2017 tax records for now. But it’s the perfect time to go through old tax records and see what you can discard.

The 3-year and 6-year rules

Keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which is generally three years after you file your return. This means you can potentially get rid of most records related to tax returns for 2014 and earlier. (If you filed an extension for your 2014 return, hold on to your records until at least the three-year anniversary of when you filed the extended return.)
The statute of limitations, however, extends to six years for taxpayers who understate their gross income by more than 25%. What constitutes an understatement may simply go beyond not reporting items of income. A common rule of thumb is to save tax records for six years from filing date, just to be safe.

What to keep longer

You’ll need to hang on to certain tax-related records beyond the statute of limitations:

  • Keep tax returns themselves forever, so you can prove to the IRS that you did actually file a legitimate return. (There’s no statute of limitations for an audit if you did not file a return or you filed a fraudulent one.
  • Hold on to W-2 forms until you begin receiving Social Security benefits. Questions might arise regarding your work record or earnings for a particular year, and your W-2 could provide the documentation needed.
  • Retain records related to real estate or investments as long as you own the asset, plus at least three years after you sell it and the sale is reported on your tax return (six years if you want to be extra safe).
  • Keep records associated with retirement accounts until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years.

Other documents

We’ve covered retention guidelines for some of the most common tax-related records. If you have questions about other documents, please contact us.

SHRED DAY IS COMING SOON!
We’ll have a “shred truck” parked in our lot for the day
and you can watch as your old documents are destroyed.
It will be an enjoyable and satisfying experience.
We’ll keep you updated via
our Social Media Pages:  FacebookTwitter and LinkedIn
our website:  LawrieCPAGroup.com
and the email address we have on file for you.

If you would like to verify or update your email address or any other contact information, please send an email to:
info@lawriecpagroup.com
with the subject line:  Contact Info

Or give us a call at:  317-886-7456

HOW LONG SHOULD YOU KEEP TAX RECORDS?

Whether you filed your 2016 tax return by the April 18 deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. While you need to hold on to all of your 2016 tax records for now, it’s a great time to take a look at your records for previous tax years to see what you can purge.

Consider the statute of limitations

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss — or electronically purge — most records related to tax returns for 2013 and earlier years (2012 and earlier if you filed for an extension for 2013).

In some cases, the statute of limitations extends beyond three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years. And there is no statute of limitations if you fail to file a tax return or file a fraudulent one.

Keep some documents longer

You’ll need to hang on to certain records beyond the statute of limitations:

Tax returns. Keep them forever, so you can prove to the IRS that you actually filed.

W-2 forms. Consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.

Records related to real estate or investments. Keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.

317.886.7456

Don’t be a victim of tax identity theft: File your 2017 return early

The IRS has announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to?

But it can be a good idea to file as close to January 29 as possible: Doing so helps protect you from tax identity theft.

All-too-common scam

Here’s why early filing helps: In an all-too-common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after filing their tax return and is informed by the IRS that it has been rejected because a return with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

The IRS is working with the tax industry and states to improve safeguards to protect taxpayers from tax identity theft. But filing early may be your best defense.

W-2s and 1099s

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2017 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2017 interest, dividend or reportable miscellaneous income payments.

If you don’t receive a W-2 or 1099, first contact the entity that should have issued it. If by mid-February you still haven’t received it, you can contact the IRS for help.

Earlier refunds

Of course, if you’ll be getting a refund, another good thing about filing early is that you’ll get your refund sooner. The IRS expects over 90% of refunds to be issued within 21 days.

E-filing and requesting a direct deposit refund will generally result in a quicker refund and also can be more secure. If you have questions about tax identity theft or would like help filing your 2017 return early, please contact us.

LawrieCPAGroup.com
317-886-7456
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What you need to know about year-end charitable giving in 2017

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Charitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give. Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.

Delivery date

To be deductible on your 2017 return, a charitable donation must be made by Dec. 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Qualified charity status

To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://bit.ly/2gFacut Information about organizations eligible to receive deductible contributions is updated monthly.

Potential impact of tax reform

The charitable donation deduction isn’t among the deductions that have been proposed for elimination or reduction under tax reform. In fact, income-based limits on how much can be deducted in a particular year might be expanded, which will benefit higher-income taxpayers who make substantial charitable gifts.

However, for many taxpayers, accelerating into this year donations that they might normally give next year may make sense for a couple of tax-reform-related reasons:

1. If your tax rate goes down for 2018, then 2017 donations will save you more tax because deductions are more powerful when rates are higher.
2. If the standard deduction is raised significantly and many itemized deductions are eliminated or reduced, then it may not make sense for you to itemize deductions in 2018, in which case you wouldn’t benefit from charitable donation deduction next year.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making — or the potential impact of tax reform on your charitable giving plans.

LawrieCPAGroup.com

317-886-7456