So you’ve filed your federal income tax return and the hard work is finished. Now you can turn to these less pressing but no less important questions.
- What records should I keep?
If you reported stock or other asset sales, keep brokerage confirmations, equipment purchase invoices, mutual fund statements, and real property closing statements for a minimum of seven years.
If you itemized, retain charitable donation acknowledgments, receipts for employee business expenses, and automobile mileage logs for at least seven years.
The same seven-year rule also applies to common tax forms that verify the amount of income you received, such as Forms 1099 for interest, dividends, and capital gains, and Schedules K-1 from partnerships and S corporations. You may want to hold on to W-2s until you can verify your wages against your annual social security statement. What about those interim reports you received during the year, such as payroll stubs? Shred them once you compare the totals to the annual form.
For your tax return itself, the general rule is keep federal and state returns for a minimum of seven years.
- What if I made a mistake on my return?
You may need to file an amended return if you inadvertently failed to report income or deductions on the original return, claimed too few or too many dependents, or chose an incorrect filing status. Normally you need to file an amended return within three years of the filing date of the original return. Remember that you may also have to amend state filings, as well as prior-year federal returns affected by carryforward or carryback items.
- What if my address changes after I file?
Use Form 8822, Change of Address, to update your taxpayer account with the IRS. You also have the option of sending a signed written statement to the IRS, or calling or visiting an IRS office. Generally, the only time you can notify the IRS electronically about a new address is if your refund check was returned to the IRS. Completing a change of address notice with the post office may also update your IRS file, though you’ll still want to notify the IRS directly.
Got more questions? Give Carl Heinemann, your Chattanooga CPA, a call.
Do you value consistency? The IRS does too, and recent regulations require it when executors report estate asset values to the IRS and to beneficiaries. These new “consistency” rules took effect under a law passed last summer. They apply to estates that must file returns after July 31, 2015. Here’s what you need to know.
Three items to note:
- The new requirements have no effect on the general rule that property in an estate typically passes to beneficiaries at the fair market value on the date of death. That continues to be the case.
- If the estate is not required to file an estate tax return because the value of estate assets is less than the estate exclusion ($5,430,000 for 2015, and $5,450,000 for 2016), you don’t have to file Form 8971. That’s true even if you file a return for other purposes, such as making a portability election.
- Each beneficiary receives only a copy of the schedule listing the assets for that beneficiary. In general, a beneficiary cannot use a value higher than the value reported by the estate as the initial basis in the property.
Contact Carl Heinemann, your Chattanooga CPA, about your tax-related responsibilities as the executor of an estate.
You may think of your business as an extension of yourself, especially if you’re a sole proprietor or the only shareholder. But keeping the two of you separate — particularly in the area of finances — is a tax-smart move. One reason: In addition to making sure the expenses you pay are ordinary and necessary, you need adequate records to support them so you can claim a deduction on your business return. Intermingling personal and business finances may lead to disallowed deductions.
Here are three ways to separate your personal and business life.
- Set up a bookkeeping system. In general, federal income tax law does not specify a particular type of recordkeeping system. Your accounting records can be as simple as a logbook with pockets to store receipts. The main requirement is to track your expenses in a manner that provides a complete and accurate account of your business activities.
- Open a business bank account. Having a separate bank account can help put to rest the question of whether you are running a business or indulging in a hobby. Why? To open a business account, financial institutions usually require employer identification numbers, business licenses, certificates of incorporation, and other legal documents that signify genuine business activity.
- Take a salary. Besides providing a clear separation between your personal and business expenses, paying yourself a reasonable wage helps you maintain a budget. Establishing a distinction is especially important for corporations. In some cases, amounts you withdraw from your corporation for your personal benefit can be considered dividends instead of a deductible expense.
If you need help establishing or organizing your business records, please do not hesitate to contact Carl Heinemann, your Chattanooga CPA.
In recent months, you may have received a replacement credit or debit card with a new feature: a half-inch square on the card’s face that looks like a mini circuit board. The square is a small computer chip called an EMV. (The acronym stands for Europay, MasterCard, and VISA, three companies with an interest in tighter credit card security.) Over the next several years, these chip-embedded cards are expected to replace the familiar magnetic strip technology on cards that you now swipe at point-of-sale devices. When you get your EMV card, you’ll need to “dip,” or insert, it into a new type of reader.
Why the change? Data on cards with the older technology is much easier for crooks to steal because the information on the magnetic strip is static. The bits and bytes don’t vary. As a result, a thief can use your card for multiple fraudulent transactions. Cards with the new chip are different. Every time you use an EMV card, the chip creates a unique transaction code. As a result, the newer cards aren’t as useful to counterfeiters and card thieves.
Payment technology companies estimate that in the next several years over a billion credit and debit cards in the U.S. will be upgraded to EMV cards. American companies are playing catch-up. Many countries in the European Union and other developed nations have been using the newer technology since the mid-2000s. That’s something to remember if you’re planning to travel overseas. Merchants in some foreign countries may not be willing or able to accept cards with the older magnetic strip.
The ongoing conversion to EMV cards will undoubtedly cause growing pains. For one thing, you may need more patience at point-of-sale terminals. That’s because cards with the new chip must communicate with your financial institution to verify the card’s legitimacy and download the unique transaction code. Also, it will take time for businesses to upgrade hardware and software. Although card issuers have created incentives for companies to upgrade, including increased liability for merchants who drag their feet, some of your favorite businesses may balk at the expense of replacing existing technology.
The new chips are expected to improve credit and debit card security. In this time of rampant identity theft, that’s a good thing for you as a consumer.
Cultivating suppliers and customers, learning how to distinguish your company from the competition, finding ways to keep expenses in line — all these facets of business require long hours, technical expertise, and determination.
Unfortunately, the fruits of your labors can be ruined overnight when disaster strikes. Hurricanes, floods, earthquakes, and other calamities have derailed companies all over America. The U.S. Department of Labor estimates that over 40% of businesses never reopen following a disaster and at least 25% of the remaining companies will close within two years.
That’s why it’s imperative to create a strategy to keep your business operating when the unexpected happens. Here are four factors to consider when creating your disaster recovery plan.
- Safety. Make sure everyone in the firm is aware of evacuation routes and out-of-office meeting locations. Update your disaster plans to include check-in and accountability procedures. Review contact lists periodically for completeness and accuracy. Store emergency supplies and response kits in a convenient location for easy access and retrieval.
- Data recovery. Identify key data and staff responsible for ensuring that off-site backups are maintained. Keep contracts and other vital documents in a fireproof safe or safety deposit box, and make copies for storage at your attorney’s office or another secure location. The faster you can regain access to significant data in the aftermath of a disaster, the quicker your business will be up and running again.
- Insurance. Review your coverage periodically so you’ll be able to meet payroll and keep operating if facilities or systems are out of action for a time. Ask about “business interruption insurance” that covers income losses from causes other than physical damage. If possible, keep a supply of emergency cash to fund several months’ worth of business expenses in an off-site location.
- Training and employee backup. Distribute your plan to every employee and make online copies available. Conduct regular exercises to test evacuation and emergency communications scenarios, and modify disaster plans as necessary. Some key staff may not be able to perform their duties during a disaster, so be certain other trusted individuals know where important records are kept and how to step in if required.
If you’d like additional tips for developing a disaster recovery plan, please contact Carl Heinemann, your Chattanooga CPA..