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4 posts from April 2014


Tax Records You Must Save

Federal and state tax officials provide a long list of records that you should keep to support claims made on tax returns.  Records help you identify income sources , keep track of expenses, keep track of the basis of property, and prepare individual and business tax returns.

Here is a list of the basic records you should save along with your tax return:

1. Income Statements

Tax documents file       *Form(s) W-2

       *Form(s) 1099

       *Bank statements

        *Brokerage statements

        *Schedule(s) K-1

2. Expenses

        *Sales slips



        *Canceled checks or other proof of payment

        *Written communication from qualified charities

        *Individual credit card charge slips (the statement may not be acceptable)

3. Home Ownership and Improvements

        *Closing statement

        *Purchase and sales invoices

        *Proof of payment

        *Insurance records

        *Receipts for improvement costs

4. Investments

        *Brokerage statement

        *Mutual fund statements

        *Form(s) 1099

        *Form(s) 2439

If your tax returns contain more specific claims such as deductions for the business use of a home, child care credit, and the like, the IRS has more specific records requirements.

To find out more about how long you should save these records, check out our blog: Guidelines for Saving Tax Records, Returns and Receipts.

Guidelines for Saving Tax Records, Returns and Receipts

Do you really need to keep all those pages and pages of tax records for years and years?   There are some updated ideas to consider about the length of time and in what format you should keep your tax returns and tax-related documentation.  First, let’s review the official requirements and then explore personal options that you may decide to follow to cover all the bases.

How long to keep tax recordsThe IRS has resubmitted its guidelines regarding federal income tax returns recommending that you keep copies of your filed tax returns as well as any supporting documentation (including forms like W-2s and receipts) for three years after the filing date.  That is the time limit during which the IRS may audit you for general tax filing questions.  Also, you may file a claim for a tax credit or refund up to 3 years after the date you filed your original return, or up to 2 years from the date you paid the tax.  In that circumstance, you will need to save your tax records long enough to back up your claim.

However, other IRS actions have longer statutes of limitations including an audit with questions about under-reporting income, which has a six-year statute of limitations. The IRS may also audit you with questions about claims on losses due to bad debts or worthless securities up to seven years after a return is filed.

If you don’t file a tax return at all, or the IRS suspects you have filed a fraudulent return, there is no statute of limitations.  So, this is why most tax advisors recommend you keep copies of your tax returns and supporting documents indefinitely.

Rules for saving state income tax documents vary.  Most states, including Missouri, follow the federal three-year rule.  Kansas also has a three-year limitation, but has options on the date it may choose including the latest of:  the date the return was filed, the date the return was due, or the date the taxes due on the return are paid.  Montana has the longest statute of limitations at five years after the date the return is due or was filed whichever date is later.  Arizona, California, Colorado, Kentucky, Michigan, Ohio and Wisconsin can assess a tax debt four years after a return has been filed.

If you amend your federal tax return or it has been adjusted following an IRS audit, the statutory limitation on action regarding your federal and state tax returns may be re-started.  If you enter into a payment agreement or an offer in compromise, this also re-starts the statute of limitations.

Meanwhile, all employment tax records should also be saved for at least 4 years after the date the tax becomes due or is paid, whichever is later. Some advisors recommend you save all proof of income statements until you file for retirement just in case there is a question about your income when computing and claiming Social Security benefits. Also, property-related records have different limitation periods depending upon when you dispose of the property and when you use the records to determine depreciation, amortization or depletion deduction as well as figure any gain or loss.

There are no official rules for how you store your tax records, but keeping them organized by tax years will pay off should you be audited or wish to amend a return.  The IRS and state tax authorities require you to provide a copy of your tax documents in a timely manner when you are audited.  It is suggested that you keep your tax records in an orderly fashion in a secure place that cannot be accessed by identity thieves and is protected from weather extremes.

With today’s technology, you can store a digital version of your tax information on a personal computer or device, or in the cloud on a secure network.  But be mindful that you must also scan and store all documents and receipts, not just your tax return.  The IRS requires that your electronic storage system “must index, store, preserve, retrieve, and reproduce” records in a “legible, readable format.” Your storage method must also be accessible for the same statute of limitations as printed documents.

McRuer CPAs offers the latest, most-secure document upload and download technology through MySafe Exchange. Ask your tax professional for an electronic version of your tax documents which you can then save on your personal computer, thumb drive, disc or any other digital storage device that you feel is secure.  Your preparation professional should also save a digital copy of your return.  The best rule of thumb is to orderly maintain your printed documents while also storing a backup digital version.

Even when your records are no longer needed for tax purposes, check to see if you have to keep them longer for other purposes, like may be required by insurance companies and lenders.  And when you feel you are safe to dispose of the tax records, make certain they are shredded or destroyed so that no personal information is accessible.

What specific records do you need to keep?  Find out more in our blog: Tax Records You Must Save.

For more information on the tax document storage method that best suits your needs, contact us at McRuer CPAs.

April 15th Tax Deadline and Filing an Extension

April 15 tax deadline calendar date pageThe April 15th tax deadline to file your 2013 federal and state individual income tax returns is here. The IRS reports as of April 9th it had already received 100 million federal income tax returns and expects another 35 million before the filing deadline.

If you need more time to file your tax return, you may request an extension through Form 4868.  You’ll need to complete and file this form no later than April 15th to avoid a late-filing penalty.  

You will also need to calculate the estimated taxes that you owe and pay those taxes no later than the 15th to avoid additional penalties and interest charges.  The interest charges are currently 3% per year, compounded daily, and the late-payment penalty is typically 0.5% per month.

For more information here is the recent IRS release:

WASHINGTON — The IRS has received almost 100 million tax returns so far this year and expects to receive about 35 million more by the April 15 filing deadline. However, about 12 million taxpayers will have requested extensions by the filing deadline, giving them an extra 6 months to file.

The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868.

Filing this form gives taxpayers until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance, that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.

Besides Free File, taxpayers can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on IRS.gov. Of the more than 12 million extension forms received by the IRS last year, over 7 million were filed electronically.


Identity Theft and Your Taxes

This year’s tax preparation season is being used as a lure for several identity theft-related tax scams.  Now, even the Taxpayer Advocate Service (TAS) name is being used to try to lure unsuspecting taxpayers into a phishing scam.

New information has been released about this scam and the signs to watch out for concerning your taxes that may indicate you are an identity theft victim. Identity-theft

Latest Tax-Related Scam

TAS provides taxpayers with an opportunity to bring their concerns about tax matters to the IRS.  The service has a new warning about an email scam with false claims about your income taxes.  It contains a link to a fraudulent website seeking your personal information and income details.

The email looks official because it uses the TAS logo and style.  The text of the email says:

“Your reported 2013 income is flagged for review due to a document processing error.  Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance.  To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

Then, it includes a link to false contact information for an assigned “advocate” as well as a fake case number.  It also requests your personal information—and that should alert you that it is a scam.  It is similar to the type of email scam that is using the IRS logo and information.  Some of the emails also offer a computer program to download that is simply a way of installing spyware into your computer to collect your personal data.

If you receive any kind of email claiming it is from the IRS or TAS or any taxing authority, know that it is a scam.  You should immediately forward the email to the IRS address that handles scams:  phishing@irs.gov. Then you should continually check your credit report to see if any of your accounts have been tampered with.   If you are a victim, you must go through a tedious reporting process to alert the police, lenders and credit agencies as you seek legal help.  Click here for an online ID Theft Tool Kit.

Identity theft with a tax-twist is on the rise as more scammers use official looking emails and fraudulent sender addresses to lure victims.   It can take months, even years, to clear damage done to a victim’s finances and credit report as well as their good name.  Victims can lose opportunities to secure loans and can even be charged with crimes they didn’t commit.  Identity theft is now the number one cause of consumer fraud complaints in America.

Identity Theft and Your Tax Return

Sometimes an identity thief will use your social security number to get a job.  The income is reported to the IRS by their unsuspecting employer, but because you don’t know about it, the income taxes owed are not paid.  Then the IRS audits you requiring you pay the taxes and related penalties. The person who was working the job may be collecting income without paying taxes for years before the IRS catches the discrepancy.

In a previous blog, Tech Savvy Tax Scams, we detailed how scammers may use your social security number and other personal information to file fake tax returns to receive refunds.  Then when you file your legitimate return, the IRS sees that a return has already been filed and will investigate you for fraud.

Be alert that you may have been the victim of identity theft if you receive an official (real) letter from the IRS stating you have either filed more than one tax return or you have received wages from an employer that you did not claim.  If you receive this kind of IRS notice, contact the IRS immediately with the phone number provided on the letter and don’t forget to call your tax preparer.

Remember, the IRS, TAS and other official government taxing authorities do not make first contact with taxpayers by email.  They also never request personal information to be submitted by email.

Identity thieves are growing more sophisticated and they are equipped with the latest technology.  Be aware of the scams, be cautious with sharing your personal information (particularly your social security number) and be mindful that should you be an identity theft victim, the sooner you begin steps to resolving issues, the better.

For more information about how identity theft may affect your taxes, contact us at McRuer CPAs.

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