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Sheldon Harding CPA — Sun, 27 Nov 2011 05:20:31 GMT

Year end thoughts and plans

What did Congress just do? How much tax do you owe by next April 15th? How much have you already paid in? Are there ways that you could save some taxes by moving income or deductions between years?

You may have seen news about rolling back the Bush tax cuts. What you need to know about this topic is that ordinary income tax rates will go back up in 2013 and this will mean some tax increases in that year unless Congress acts further. Congress voted late in 2010 to keep much of this from happening in 2011. There are some increases in 2011 in the capital gains and corporate dividends received tax rates. Note that a roll back sounds much better than we are increasing your tax rates. Most taxpayers will experience 5-15% increases in their 2013 income taxes if their income is the same as in 2009 or 2010. There will be a payroll tax table adjustment in January 2011 due to the one year 2% social security tax savings that will help all workers including self-employed. Note that when this 2% savings expires there will be an increase in payroll tax and self-employment tax back to the former rate. If you know what you had withheld for social security taxes in 2010, your 2011 social security savings will be almost 1/3 of that. It is good to be aware of what your expected tax increase or decrease is.

The tax bill that passed at the end of 2010 has 177 pages of technical explanations, so all tax preparers are becoming aware of what is there, but many are just extensions of items that were in effect in 2010. I will try to put some in this blog at the “Many tax changes …” topic, but if a particular tax item concerns you, you will need to contact me or research other reliable income tax sources.

The IRS has made many changes with new pronouncements. Tax preparers now have new rules, oversight and costs. If they do very many returns, they have to e-file returns starting with the 2010 tax forms in 2011 for individuals, trusts and estates. So that is now the standard rule. They have setup some guidelines for what will be exceptions to that standard rule, but they are few and require additional forms or signatures.

If you don't know how much your income taxes will be, it is better to plan for it now rather than wait until almost April 15th. Why have big surprises? You can limit surprises by taking a closer look at your situation. I can serve new clients better by starting them before the year is over so that I can review their prior tax returns, help them determine their potential tax liability, setup their last tax return and give them a better checklist of what is needed for the next returns.  Some of these services will be done for a new client at no charge or reduced charges. You should expect that you will have some requested deposit on your 1^st year fee for me to begin work after the start of our meeting. Clients will get more attention and service by not waiting until filing season is in full swing. By asking good tax questions before year end your options can be well thought out. We can get started now, so give our office a call at 720-870-0949 to set a no obligation free ½ hour appointment to meet and review your situation.

We send out the personalized checklist of what to send to us for income taxes near the beginning of the year. The tax software for the new year is typically ready to get started by the end of November. If you need to plan how much your tax is for extra income, want to reduce your income tax withholding, or have completed property sales or other changes that affect your taxes, I can get those in the actual new year tax software by December and that helps reduce the heavy workload from mid-February to April. We can use estimates that will be finalized later. That helps both of us know what to expect for tax results and what is missing to finish the returns.

We also have tax planner software that can help you year round to see what your after tax income really is. We start with your last tax return and then make changes for current or future years or different alternatives you are considering. That helps you know what will be left after taxes for particular decisions.

We would be glad to e-mail our personalized tax checklist upon request. If you are doing something new and want a form specifically for that it is quite easy to e-mail you a blank form to cover that new need (whether it be moving, IRA conversion or distribution, new home, rental property, business, sale of home or investments, etc.).

I want my clients to stay in touch, so I am always ready to hear from you. Remember, don't get down on your numbers, move them onward and upward with Sheldon@TheResponsiveCPA.com!

Posted by Sheldon Harding CPA at 12/23/2010 7:35 AM | Add Comment

The office did move end of Nov 2010

New address is: 15200 E Girard Ave, Suite 2075, Aurora CO 80014. Other contact information is the same. Our phone number now is: 720-870-0949. The fax number is: 720-870-4352. My website remains athttp://www.TheResponsiveCPA.com and is a good place to show someone what I can do for them, if you don't have my latest business card on hand. I likely will be adding another main website page soon.

This move allows me more space to grow in a more professional environment. We trust that all of our clients will find it convenient with good access from I-225 and Parker Road. Fairplay Way is a stoplight just to the west of Chambers on Hampden. That road comes right around to our building. The building is the Hancock Park building that is very visable to the northwest one block from Hampden and Chambers. The building is 4 stories and we are on the second level right above the entry way and adjacent to the shared conference room. Come see why we jumped at the chance to move when we realized this more workable space will allow us to keep reasonabe fees for our services to you.

Posted by Sheldon Harding CPA at 12/23/2010 7:19 AM | View Comments (1) | Add Comment

Many tax changes have been made recently and more are coming

This is a link that does attempt to keep up with tax changes and headlines as it is not possible for me to list all: http://www.taxalmanac.com/index.php/Current_events.   The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) was signed by the President on December 17 and became law affecting many tax provisions for 2011.

It is important to review which changes might apply to you, your friends or family. Doing some tax planning with an experienced and up to date professional will help you know what to expect and what you have to do to qualify for new laws. I am happy to assist with this process.

All taxpayers should be aware that most income tax returns done by your preparer now need to be e-filed. Exceptions to the e-file rule may need additional forms or signatures. There are now minimum late-filing penalties for most income tax returns that make filing your returns by the filing or extended due date much more important. For instance individuals may now be charged a minimum late filing penalty of $135 if their return has not been filed by December 15 even though they extended the time of filing to October 15 and only owe a smaller amount of tax. For larger amounts of tax owed, the late filing penalty continues to be up to 25% of your tax. You avoid this penalty by filing the tax forms on time even if you cannot pay all of the tax due with the forms.

Following are some of the other tax changes that may apply to you.

1. If you purchased a new main home for you or your family and it was under contract by April 30, 2010, you might qualify for up to $8000 of refundable credit on your 2009 tax return.  You also had to get the closing done by September 30. The maximum amount is only available if you had not owned a main home for 3 years. This does need to be your main home for 3 years or it will have to be paid back.

Anyone that changed to a different principle residence has a chance to qualify for up to $6500 of credit by being under contract to purchase a new main home by April 30 (and finalized by September 30). This applies to many people who were not first time home owners. If you lived in your former home for 5 consecutive years, you would have a chance to benefit from this. You can even rent your current home and don't have to sell it right now.

If you went under contract to purchase a home by the end of April 2010, you can amend your 2009 return to claim the credit. If it was purchased in 2010 you can also use the 2010 tax return filing to claim the credit. We can help you through this process and it may not be as expensive in fees as you think. You do have to file returns with this credit on paper (the IRS is not allowing e-filing). You need a good copy of the signatures and the settlement sheet or HUD form from your closing documents. Other documentation may also be required. We have had clients claim these credits and may know what the IRS has been requesting as attachments to these claims.

We will assist you to see if it appears your purchase qualifies for the credit at no charge and have reasonable prices to finish your 2009 tax return or amendment to get this large credit. If you only have wage income to verify your previously filed tax return, bring a copy of your W-2 and the amendment might be able to be done for as little as $200. An alternative is to this credit on your 2010 taxes if the home was purchased in 2010

These credits have generated some new interest in the real estate markets this year.  It does phase out for taxable income over $125,000 (or $225,000 on joint returns). If it doesn't apply to you, it can make a great referral as you are talking to others about their new home.

2. If you sold your main home and it was not your main home for 5 years, you may now owe capital gains taxes if sold at a profit. This should be a concern for any taxpayer that needs to sell their home before the 5 years are up and they will have a gain. Many do not have a gain due to current local real estate market conditions, but that is likely to change at some point. Home owners may owe some taxes on the sale of their homes which is different that most homeowners have experienced over the last 15 years.
3. Most employers who pay some health care insurance premiums for their employees will receive a new credit off of their tax.

4. A new twist that will help the self-employed will allow them to reduce their self-employment income by deducting their own health insurance premiums before calculating the self-employment taxes.

5. Taxes on investments in the form of Corporate Dividends received and Capital Gains are being increased for 2011. Corporate Dividends will once again be considered taxable at ordinary tax rates. Net long-term (over 1 year) capital gains will have a maximum rate of 20% (instead of the current 15%). Those in the 15% tax bracket will get a 10% capital gains tax rate (instead of current lower capital gains rates).

6. The adoption credit has increased and is now refundable. You should find out how this might help you if you are seriously considering adoption.

7. The American Opportunity Education tax credits continue. This replaced the former Hope Credit. More taxpayers will qualify and for more years of education. Part of this credit is refundable and it can mean some interesting tax planning for working students and their parents. It is better to review parents' and kids' tax returns together so that tax-saving opportunities are not missed. The new credit now applies to the first 4 years of college and is $2000 for the first part of the tuition and required eligible expenses; plus 25% of the next $2000 for up to $2500 credit. The Lifetime Learning Credit remains in the law which can help taxpayers beyond their first 4 years after high school.

8.  Energy efficiency improvement credits are continued in 2010 and similar to 2009.  This is for taxpayer homes for insulation, windows, doors, roofs, air conditioners, water heaters or boilers, furnaces, electric heat-pump water heaters or advanced main air-circulating fans. They were not avaiable in 2008 as this credit was suspended for that one year.  The amounts are still limited, but now increased to 30% and up to $5,000 of what you spend in 2009 and 2010 for a maximum credit of $1500. The $500 lifetime cap is now gone, so it doesn't matter if you took that in earlier years.  You may now qualify for more credits. Energy credits still exist for solar, geothermal and wind. It also exists for fuel cell property expenses with a $500 credit maximum.  Plug-in electric car $2,500 credits are also available for a limited time. It is best that you research online and make sure your item qualifies. This is a link that could be helpful to you:  http://www.energystar.gov/index.cfm?c=tax_credits.tx_index#s11

9. The Mortgage Forgiveness and Debt Relief Act of 2009 does not tax cancellation of debt income on mortgage debt used to acquire a principal residence. So if your lender makes a deal with you to keep you in your home, this may help you.  If you get such a deal accomplished, you will only have to reduce the cost basis of your home by the amount of debt discharged. Since gains from the sale of principal residences are often tax free if $250,000 ($500,000 joint) or less, reduction of cost basis is a consequence that may not cost you any tax. So the exclusion of income is a very good benefit for those in the situation of being unable to make their full mortgage payments. This benefit continues through 2012.

Many home owners that have suffered a hardship but still have the means to make a lower house payment may be able to write a hardship letter and get the process of requesting loan modification started with their lender. This does not have to be an expensive exercise nor does it require foreclosure to work.  It might help a home owner avoid foreclosure on their home. But it does require a great deal of patience and persistence to be successful. Ask the lender for "loan modification qualifications" and speak with the loss mitigation department. You should be frank, but there is no need to threaten foreclosure. The lender may send you a packet of information and forms if they think it will work for you. For assistance with a hardship letter, you could start some research on the subject with:  http://loanworkout.org/2007/10/example-harship-letter/ but you could search to find others that may be closer to your exact situation. These kinds of workouts usually take a lot of persistence with lenders who are getting a lot of requests in our challenging economy.

10. Standard mileage rates for business use were raised to 51 cents per mile for 2011. For 2009, they went down to 55 cents per mile and for 2010 it is 50 cents per mile. Earlier, they were increased to 58.5 cents per mile on July 1, 2008, from 50.5 cents per mile for the first part of 2008. It is important to do some good record keeping of mileage when you have a vehicle used for both business and personal use. These records can be used to claim and support a deduction when your vehicle is used for your business or on your job and your employer does not pay the full allowance. Actual expenses can also be utilized when higher than the standard mileage deduction. Other mileage rates apply for medical, charitable use, or for moving expenses. You will find these at http://www.irs.gov/formspubs/article/0,,id=178004,00.html.

11. Taxpayers with 529 tuition education plans can now distribute money tax-free to pay for computers and internet technology.

12. Workers still qualify for a $400 "making work pay" in 2010 but that will be replaced by a 2% 1 year reduction in social security tax for 2011. This will mean some adjustment to your net pay checks in January 2011 and also change the amount the self-employed owe in taxes. There is a new tax-free limit of $2400 for unemployment benefits in 2009 (I do not see that this applies to 2010). There are many changes that will cause a lot of questions and confusion this year. Do your taxes right with a tax professional and extend the filing of the paperwork whenever it cannot be completed properly by April

13. Please check the link at the top of this section for many more changes.

Posted by Sheldon Harding CPA at 12/22/2010 7:36 PM | Add Comment

Corporation owners (especially S Corp) should pay themselves some wages and keep up with payroll filings

The IRS is doing more small business audits. It will be common for them to do some checking on corporations (especially S corps) and their owner compensation. At a minimum, you should start some small salary for any owner that does any work for the corporation as soon as practical even if there is very little net income or even a loss. Having no compensation on the officer salary line on the 1120-S is not likely to be a good strategy. Every owner that is doing some work for the business is to be paid some wages at a fair market rate. You can start with a small number before you have $20,000 in profits, but it is usually best to make the salary at least $7,000 and file the forms to avoid some of the potential risk of penalties. A good rule of thumb is to have the officer/owner salaries exceed the other profit distributions to themselves. It is usually best to go ahead and increase those salaries at least a little each year. But it really comes down to facts of the skill and critical role of the owners, as well as how much time and effort is put into the corporate business. This link is about this topic and good reading if you are in this situation. http://www.nysscpa.org/cpajournal/2006/506/essentials/p46.htm.

It is a good time to decide on the final owner wages for the year by December, so that all of the payroll reports can be completed right away in December or early in January. This avoids delays to getting tax forms timely filed, taxes paid and minimizes penalties. It can even help us start on your income taxes sooner. The fourth quarter of the year is the best time to follow through completely, consider paying in additional income tax withholding so that income tax penalties can be minimized if more income taxes are or will be owed. Please give our office a call if you need additional assistance or to discuss the facts in your particular situation. It is good to plan and know the tax you could owe.

My recommendation is for businesses to find a good payroll service that concentrates on this line of work. This helps the business get the best possible service on this critical component. Payroll needs to be done right and timely in order to minimize penalties for late filing or late payment, which are all too common. Avoiding these employer penalties can make the payroll service fees a worthwhile expenditure for your business. The new corporation owner should plan on this as part of the incorporation and begining of business. My office does help with minor payroll questions or correspondence and will prepare some amended or late filed forms when needed. A payroll service that does payroll full-time, though, can do a lot better job to make sure you keep in compliance and don't miss any important dates on the calendar.

Posted by Sheldon Harding CPA at 12/20/2010 3:42 PM | View Comments (4) | Add Comment

Tailor your medical costs for tax savings and maximum benefit to those that mean the most to your success ...

Benefit plans chosen wisely for the business owner and employees can save substantial taxes. You just need to choose the right plan document that will save you the most in taxes with the least change in current cash flow. This helps the self-employed person that works with their spouse in a big way, but can also help those who hire unrelated employees. It helps legitimize your deductions and gives you good documentation if any government authority checks on your employee benefit plans or other tax deductions.

Below is a link offering you a way to get information on these benefit plans and how to implement them. It is critical that you put the plans in place to offer these tax saving benefits to those who work for you. Section 105 Health Reimbursement Accounts are a good place to start for the self-employed who do have their spouse help them on a regular basis. It can easily save you a lot in taxes (many regularly save thousands per year) by putting amounts you will spend anyway under one of these plans. Taxpayers often get little or no tax savings on medical expenses without the plan documents, but do get full business deductions with all of the resulting tax savings once the plan is in place and expenses documented.

The following website will help you find the right kind of plan so you can design it the way that you need for your family and employees who work in your business. It is automated and helps you design a plan the way you want that complies with the laws and IRS regulations. You can also outsource administering these plans right on the website or use the software to keep track of your employees useage of the plans. It is a way to help my business clients continue to move their numbers onward and upward! Try this link today ...

http://www.flexaffiliates.com/plan/Sheldon/index.php

Posted by Sheldon Harding CPA at 12/15/2010 3:46 PM | View Comments (1) | Add Comment

The impacts of recent health care reform legislation

This year, 2010

If you have not been able to get medical insurance because of pre-existing conditions, you can join a high-risk insurance pool.

Certain small businesses and tax-exempt entities who contribute to the cost of their employees' health care premiums will qualify for a tax credit of up to 35%. The amount of credit depends on, among other things, the number of employees and their average wage.

Be sure that our office receives the details on your health coverage and your payroll, who is covered and what their premiums are.

2011

Employers must disclose the aggregate cost of employer-sponsored health coverage on the employee's W-2. This will make getting accurate information to your payroll service provider a critical piece to avoid penalties. Start gathering corporate vendor ID numbers so that you can comply with the 2012 new form 1099 requirements below.

2012

Form 1099s for payments to corporations (as well as non-corporate entities, including individuals) of $600 or more a year also go on 1099 forms. This will mean that a lot more of these forms will be sent out and received by businesses. All business owners will need to be sure that they have a method to complete these forms for all vendors ready to go before year-end, as the forms are due only one month later to the vendors.

2013

Maximum contributions to pretax Health Care Flexible Spending Accounts will be limited to $2500 a year. It was previously set by the employer and continues to just be for the non-owners of the business. Business owners, especially those without employees, should consider a Health Reimbursement Arrangement (HRA) that can be a great help to the self-employed that hire members of their family, including their spouse. You can tailor the HRA to work the way that you want it to for your family and your employees, but all employees need to be treated equally. See the blinking arrow link further down in the blog.

Individuals making over $200,000 or marrieds earning over $250,000 will see their Medicare tax rate increase from 1.45% to 2.35% on wages over these thresholds. The employer portion does not increase. But the self-employed will see their rate go up to 3.8% for self-employment income above these income limits.

Individuals with adjusted gross income over $200,000 face a new Medicare contribution tax of 3.8% of net investment income.

2014

Insurance will be available to all adults, even those with pre-existing conditions.

Businesses with more than 50 employees will be required to provide affordable health insurance to full time employees or pay a fine.

Individuals will be required to have coverage or pay penalties that start at $95 in 2014 and rise to the greater of $695 or 2.5% of income in 2016. This will amount to as much as $2500 for $100,000 of earnings. This is where the greatest impact will be felt by taxpayers that are under $200,000 of income that don't have health insurance.

The tax credit of up to 35% introduced in 2010 can go up to 50% if insurance is purchased through a Small Business Health Options Program (SHOP exchanges).

Tax credits will be available for individuals and families with incomes below 400% of the federal poverty level that are not eligible for Medicaid, employer sponsored insurance or other acceptable coverage who obtain health care coverage through an insurance exchange.

Posted by Sheldon Harding CPA at 8/2/2010 2:13 PM | Add Comment

A HUGE tax planning opportunity!

Great opportunities for planning make 2010 a good year to do some long-term planning for your family. It may be the best year to give to your heirs to limit taxes. The ROTH IRA is another way to pay tax now at a lower tax rate.

ROTH IRA's are a great reason to do some planning now. Beginning in 2010 all IRA's and many other retirement accounts can be converted to a ROTH IRA. There is no $100,000 income limit after 2009. You need to visit with your financial advisors about whether this is a good short-term or long-term plan for you and your family. Do it right and you will be glad you did this planning. ROTH IRA's can give you the very best future capital gain rate of all, ZERO, if the assets are held until age 59 1/2 and you have had a ROTH account for at least 5 years. With coming increases in the capital gains rate, you should see if it makes sense for you. With other expected rate increases, why not limit the taxes the goverment gets from your family in the future by acting now.

You can contibute new amounts to a ROTH or traditional IRA each year if you have earned income, but there are limits each year. On the other hand, a conversion to a ROTH can move large balances out of a traditional IRA and into a ROTH IRA account. You pay current income tax on any money in the traditional IRA just as if it were all distributed in that year.

A conversion to a ROTH IRA costs you income tax now, but may save you and your family much future income tax. If your income may be lower in 2010, then may be an even better time to consider the ROTH. Please note that it doesn't have to be an all or nothing decision. It likely is a good decision to have some traditional and some ROTH. ROTH's are beneficial for a couple of reasons. Once you have held a ROTH account for 5 years and you are 59 1/2 or a first-time homebuyer, the contributions and earnings can come back to you tax-free! This is even if you are earning a good income pre-retirement. But the ROTH is even better if held long-term. Young workers should start putting money in a ROTH account as soon as they have enough funds to cover their needs and appropriate emergency funds saved. It is a good way to save for a down payment on a home.

In addition to a ROTH IRA, it can be a good thing to have some amounts in a traditional IRA account to save and defer income tax now. The distributions for the traditional IRA can be spread out during your primary retirement years with the goal of minimizing the taxes, but give you some taxable income when your tax rate might be lower. This taxable income might help you offset other deductions and exemptions that you may have in retirement. With planning the taxes on the traditional IRA distributions can be controlled and kept low and yet the traditional IRA saved you income tax in earlier years. It is best to have a financial advisor that will do some multiple year calculations that understands your investment balances, earnings potential and the way you want your future to unfold.

Posted by Sheldon Harding CPA at 8/1/2010 12:59 PM | Add Comment

You do not have to file your tax returns by April 15th! If there is no additional tax due, there is no penalty!

Individuals really don't need to file your income tax returns by April 15th and if there is no additional tax due, there is no penalty for delaying the filing of the return. It is better to do it right and put more time into doing it correctly even if it takes a few more months. An extension form then helps you save late filing penalties should you actually owe tax when you finish the returns. Please note that you shouldn't forget the state return. Colorado now has a 5% immediate penalty if the tax is not paid by April 15. Other states are also raising revenue, so don't let them get more penalty $ from you. Estimate your taxes closely and get it paid on time.

It is better to make sure you have all of your deductions and have everything needed to your preparer. You may be able to save money that way by waiting until you are certain you have found everything that you need to save taxes. You can get the paperwork filed over the next 6 months and I always need some summer work anyway. You can save $ on my preparation fees with a summer discount.

This year it is especially true since there are some new forms and tax law changes to be aware of. Some are just planning to purchase a home and will be able to take a 2009 credit even though they are purchasing the home in 2010. You can do the return once and do it all instead of amending the tax return.

I recommend that my clients know about how much taxes might be due by the next April so they can plan for it and even start sending in some money or at least setting it aside.

Posted by Sheldon Harding CPA at 4/15/2010 4:02 PM | Add Comment

Self-directed IRA custodians and plans

Can I self-direct investments in my IRA or other retirement or health plan into non-traditional investments like real estate or other businesses of my choosing?

In short, it is possible. You do have to choose a non-traditional custodian of those funds that will invest in other allowed investments beyond the normal universe. You can't invest retirement plan assets in prohibited items in the tax law, but that list is quite specific and short. So you need to choose a custodian that has a good legal team that designed its program well and check their program out with other legal and tax advisors. There are now several non-traditional custodians of IRA funds available to choose from. Once you choose one, you can then invest in ways that you previously thought was impossible to do with your IRA funds.

So if you really want to get a part of your IRA funds out of the traditional financial assets like bonds and equities, then I suggest that you start talking with your circle of advisors or forming a circle of advisors that will advise you wisely and support you in your decision.

In general, you can't invest in items that would benefit you or your family in some way like a personal residence, your own business, or collectibles. So seek good advice and find out the facts on some creative possibilities.

Posted by Sheldon Harding CPA at 12/7/2009 9:21 AM | Add Comment

How long should I save these records?

How long must these records clog up my house and my storage? It is an important question as many are concerned about identity theft and security of their records as well as potential lawsuit and legal issues. It is more than a good idea to put your records on a written schedule of when to shred or destroy them, if ever.   Written retention policies are now often mandatory and used in legal cases. Some items do need to be kept permanently and I will attempt to answer this question below.   For more thorough answers, legal advice is recommended. You can search the internet under "record retention guidelines" or other search terms to find some additional guidance or samples that might be more specific or a better guide than my general description below.

A good link that I found is: http://www.cpadirect.net/cpadirectmarketing/When_Can_I_Throw_Documents_Out.pdf

The IRS explanation is at:  http://www.irs.gov/businesses/small/article/0,,id=98551,00.html

What should you keep permanently? Tax return copies and worksheets (electronic or paper versions) and correspondence that proves the government entity received the return. This helps to prove that you filed returns if the government loses their records or a mistake was made by the government employee that put the information in their system. Deeds, mortgages, bills of sale and records on anything you currently own will document the tax basis and keep you from paying additional tax if you did not have them. This can include construction records, home improvements, and leasehold improvements.  Retain cancelled checks on important payments for taxes, assets and important contractual payments, even leases.  Keep correspondence on legal and important matters as well as retirement, pension and union agreements for a business. Business financial statements, year-end trial balance records or general ledger ending balances (an annual electronic backup of these records, especially if not printed) should be kept.

Keep permanently any audit reports from government authorities as well as tax related correspondence.  Insurance policies, employee benefit plans and business training manuals when you have hired others are important to keep.  Property appraisals should be retained. Corporate minute books, business licenses, contracts, insurance records, accident reports, claims and policies are another set of records to keep. Corporations also need to retain their shareholder records and transactions. If you make special tax elections like LIFO inventory, you may need to keep some details permanently.  Patents and trademarks are items that you may also need later.

Many other records should be kept 7 years including general cancelled checks (remember to keep important ones like real estate transactions or other assets you still own); bank statements; statements indicating tax withheld (like W-2); sales, invoicing and purchasing records for business (including rental property) transactions; business payroll records and taxes; notes receivable ledgers and schedules after payoff; general ledger transaction detail, accounts receivable, payable, inventory schedules and reports; as well as settled cases for accident reports and claims. These are items that you really may need if someone or the government attempts to prove fraud against you. Some records are needed for this long after you file your tax return. So if you did not file a particular tax year timely, you should extend the time for keeping those records for 7 years after you file.

There are other records that you need for 4 years or less that are really just generally needed, if at all, for your burden of proof against another party. These include bank reconciliations, general or routine correspondence, deposit slips, employment applications and expired insurance policies.

Some items can be kept for shorter periods of time. For important legal items it can be beneficial to have legal quidance as sometimes there are legal advantages to following your written guidelines. Some immaterial items that do not save you any tax deductions might also qualify for earlier destruction. Otherwise, it is usually better to error on the side of caution and retain until at least your next regular time for destruction per your policy.

Employers really do need to have their policies in writing for a wide range of issues including acceptable use of e-mail in the business. There are "business-critical" e-mails that should be retained and separated from "non-essential messages" that can be purged from the system. You need to go to the trouble to define an "e-mail business record" for your business. Additional research and legal advice is recommended if this applies to you.

This list is not meant to be all inclusive or legal advice, but to give you some helpful general categories of time so that you can begin to separate out your records and destroy the items that are not needed for any future reason.

Posted by Sheldon Harding CPA at 12/4/2009 12:27 PM | View Comments (1) | Add Comment

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Sheldon's Thoughts

Welcome

Great opportunities for planning make 2010 a good year to do some long-term planning for your family. It may be the best year to give to your heirs to limit taxes. The ROTH IRA is another way to pay tax now at a lower tax rate.