Be Diligent About Saving Your Tax Records
You’re probably getting ready to sort out last year’s financial records and prepare for this year’s recordkeeping. But what should you keep and what can you throw away? Here are some suggestions.
Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.
For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of expenses for child care, medical insurance if you’re self-employed, and any other expenses that appear on your return.
The IRS can audit you routinely for three years after you file your return. In cases where income is underreported, however, they can audit for up to six years. To be safe, we suggest keeping your tax records for seven years.
Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. Finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.
Recordkeeping is required for charitable deductions
Don’t forget to obtain the documentation you need for all of your 2011 charitable contributions. Without this documentation, you risk losing the deduction. Even gifts under $250 require a bank record or receipt from the charity.
With questions or for help in preparing your 2011 taxes, please contact our office at (317) 782-3070 to schedule a complimentary consultation with one of our tax specialists.
Gather Documents for your 2011 Tax Return
If you haven’t started already, consider gathering the items you need to file your 2011 tax return including W-2s, 1099s, and other forms you receive from your employer, broker, banker, etc. Review the documents carefully. If you detect errors, contact the sender immediately for a corrected copy.
With questions or for assistance preparing your tax returns, contact Simons Bitzer at (317) 782-3070 for a complimentary consultation with one of our tax specialists.
Does Your Child Need To File a 2011 Tax Return?
You should determine whether or not your child needs to file a 2011 tax return. A return is needed if wages exceeded $5,800, your child had self-employment income over $400, or investment income exceeded $950. If the child had both wages and investment income, other thresholds will apply.
With questions, please contact our office at (317) 782-3070 and schedule a complimentary consultation with one of our tax specialists.
Don’t Forget the “Nanny Tax”
If you paid a household worker, such as a gardener, housekeeper, or nanny more than $1700 in 2011, you may be liable for payroll taxes on the wages paid. The same applies if you will pay more than $1800 to these people in 2012.
With questions or for more information, please call (317) 782-3070 to schedule a complimentary consultation with one of our tax specialists.
Corporate Minutes Support Tax Position
Writing up the minutes of board of directors’ meetings is not usually a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.
Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.
Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.
If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.
Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.
If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping. With questions about tax planning throughout the year, please contact Simons Bitzer at (317)782-3070 and speak to one of our tax specialits.
IRS announces business mileage rate for 2012
The IRS recently announced that the mileage rate for business driving in 2012 will be 55.5¢ a mile. The rate can be used for cars, vans, pickups, and panel trucks.
Companies that don’t want to keep track of the actual costs of using a vehicle for business purposes may use this standard mileage rate instead. An annual study of the fixed and variable costs of operating an automobile is used to determine what the standard mileage rate will be for a given year.
In addition to the mileage rate, a separate deduction may be claimed for parking fees, tolls, interest relating to the purchase of the automobile, and state and local personal property taxes.
The standard business mileage rate can’t be used for automobiles used for hire (e.g., taxicabs) or for fleets of automobiles used simultaneously by the taxpayer. Nor can the standard rate be used if the vehicle was previously depreciated by other than the straight-line method, including using bonus depreciation or the Section 179 deduction.
When the business mileage rate is used, depreciation will be considered to have been allowed at a rate of 23 cents a mile. This depreciation reduces the taxpayer’s cost basis in the vehicle. If you have questions or would like your own mileage log, please conact our office at (317) 782-3070.
Highlight these January tax deadlines on your calendar
Happy New Year everyone! It seems as though everyone is back in action and looking forward to the New Year! Start the year off right by marking these important January tax deadlines on your calendar and avoid unnecessary penalties.
* January 17 – Final 2011 individual estimated tax payment is due, unless your 2011 tax return is filed and taxes are paid in full by January 31, 2012.
* January 17 – Due date for calendar-year trusts and estates to pay final installment of 2011 estimated tax.
* January 31 – Employers must furnish employees with W-2 statements for 2011. 1099 information statements for 2011 must be furnished by payers. (Deadline for 1099-B and consolidated statements is February 15.)
* January 31 – Employers must generally file 2011 federal unemployment tax returns and pay any tax due.
With questions or for more information about filing your 2011 taxes, please contact our office at (317) 782-3070.
Do your beneficiary choices need updating?
Are your beneficiary designations up to date? Do you know which accounts have beneficiaries and who you’ve designated? It’s easy to lose track, but so important to keep them current. Here’s why:
When you designate a beneficiary for an account, that person inherits the assets in the account, regardless of what your will might say. That is why updating your will periodically might not be enough. Typically, you’ll have beneficiaries for each of your IRAs, your 401(k) or other retirement plans, annuities, and insurance policies. Your designations could be out of date just because of life’s changes. Since you made your initial choices, you may have married, had children, or divorced. Some of the beneficiaries you chose could have died, divorced, or married. For a variety of reasons, you may wish to choose new beneficiaries.
Also, the tax laws change frequently, and they can have an impact on your choices. Choosing the wrong beneficiary or failing to name a contingent beneficiary, can affect the long-term value of your IRA assets after you die. That’s why it’s important to review your choices with tax consequences in mind.
Here’s how to update your designations. At a minimum, you should have copies of your beneficiary designations in one place. If you don’t, call the trustees of your retirement accounts and your insurance agent, and request copies. Then review the documents and decide what changes you’d like to make. Make an appointment to review your decisions with your tax and estate planning advisor. Discuss matters such as naming secondary beneficiaries and naming your estate as a beneficiary (sometimes not a good idea). Finally, send your changes to the account trustee, ask for a confirmation, and keep copies in your records.
For any assistance you need, please contact our office at (317) 782-3070.
Need a last minute holiday gift idea for your child?
When planning gifts for children on your holiday list, you might want to think beyond the traditional retail offerings. Consider financial gifts that can bestow benefits for many years to come.
Some financial gift options you might consider:
* U.S. savings bonds: Savings bonds are used by many families to introduce children to the concept of saving. I bonds are indexed for inflation and can provide relatively attractive rates of return.
* IRAs (regular or Roth): For 2011, you can contribute the lower of $5,000 or the earned income of the child. An early financial start can produce amazing benefits from compounded interest accumulated over several decades.
* Stocks or mutual funds: Equities are a good way to introduce a child to the investment world.
* Collectible stock certificates: Vibrant, framed certificates are available for many companies. A Disney, Dream Works, or Coca-Cola stock certificate can provide a colorful reminder of the importance of investing for the future.
* Collectibles: Postage stamps or coin collection kits can provide years of enjoyment and form the basis for some life-long hobbies. An interesting gift idea is an official U.S. mint proof coin set for the year the child was born.
Please call our office at (317) 782-3070 if you would like to review the tax issues related to any of these financial gift options, especially if you are considering a larger amount.
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