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Rules on Saving Records

01/25/2016

Tips to Keep Tax Records Safe

Imagine a burglar breaks into your home while you’re at work. The thief doesn’t steal jewelry, your TV or your favorite collectible. Instead, the thief heads directly to the home office files and steals your tax documents and bills where you’ve organized your records alphabetically to make them easier to find. The thief checks out your basement, closet and upstairs attic for boxes that look like they contain financial records. The thief walks out with paper. Tax_related_identity_theft

All in all, the paper value of the loss is negligible, but the thief has stolen all of your and your family members’ personal information and private financial data. The end result is that you and your loved ones could suffer hundreds of thousands of dollars or more in identity-theft related damages that may follow you the rest of your lives. It could also affect your taxes.

Tax documents in particular contain your and your dependent’s tax and personal information including receipts, old W-2 forms and bank account information. Experts point out that all documents containing your financial, health and tax information, especially records with your Social Security number on them, should be kept securely.

Most of us are being more diligent about using passwords and keeping digital connections and information about our personal data secure online. However, many taxpayers may have forgotten about the old paper copies that remain unprotected and vulnerable. Almost daily the IRS uncovers new scams using stolen identities. These scammers file fake tax returns under legitimate taxpayer Social Security numbers seeking refunds. The stolen IDs come from online and paper copy sources.

The issue is that taxpayers are supposed to keep records but doing so may provide an opportunity for someone else to take advantage. Regulations mandate that we keep a record of our tax returns and their supporting documents (receipts, statements, etc.) for a minimum of three years to a maximum of seven years. Additionally, we are to keep records related to a property we own for three to seven years after disposing of it.

To keep things safe, if you keep paper tax records, make certain they are stored in a locked and secure area such as a locked desk drawer, locked file or safe. Consider scanning your records instead and saving them electronically in encrypted files, both on your computer and your hard drive back-up. This also applies to all financial and health records that contain your personal and account information.

Converting paper files to digital files takes time and may require a scanner and a small investment in software to accept scanned documents (though many printers today serve that function). Remember that you’ll need encryption software. Make certain you keep your passwords in a secure place as well. You may also request electronic versions of your tax documents from your tax preparer, who should already be submitting your records in an electronic version to the IRS.

Dispose of paper tax records by shredding them first. If you are disposing of an old computer or any other product with a hard drive, remember that just “deleting” a file does not erase it completely from the computer. Electronic products that can hold data should be “wiped” to ensure all data is wiped out. This will require specialized disk utility software. Your computer, your mobile phones and tablets, most printers, copiers and all other electronic devices that can save files should be wiped before disposal.

To keep your computer files secure from an online thief, experts recommend you use reputable security software that updates automatically with essential tools including a firewall, virus and malware protection and file encryption options for sensitive data. Use strong passwords, protect them and back up your files regularly.

An IRS publication sums it up this way, “Treat your personal information like cash, don’t leave it lying around.”

03/26/2015

New Tax Laws Affecting 2015 Income Taxes

What's new?As we complete and file our 2014 federal income tax returns, this is a good time to make adjustments as needed affecting our current-year 2015 income tax plan.  To help, the IRS has released its list of new income tax changes, rates and updates that are now in effect.

As a reminder, federal income tax is designed to be a pay-as-you-go tax.  You are obligated to pay taxes throughout the year as you earn or receive income, and you may be subject to penalties if you don’t.  You may pay through payroll withholding, or by paying estimated taxes.  

The new updates regarding deductions and exemptions may directly affect the tax you owe.  Consider our tax planning services to give you a year-round tax perspective so the annual tax preparation season will go smoother with fewer surprises.

Standard Mileage Rates:  For taxpayers claiming itemized deductions, including deducting the cost of operating your personal vehicle for business purposes, the standard mileage rate allowed for business miles driven is now 57.5 cents per mile, up from 56 cents in 2014.

The business standard mileage rate is based on a combination of annual averages of fixed and variable costs of operating a vehicle including not only gas and oil, but also depreciation, insurance, tires and average maintenance and repairs.  Some taxpayers may enjoy a greater tax benefit by itemizing their actual annual vehicle costs, but they must choose between the actual costs method and the standard mileage rate deduction.

If you will drive more than usual for medical expenses or because of a move this year, the rate has dropped to 23 cents per mile for this year, down a bit from 2014’s rate of 23.4 cents.  The mileage rate allowed for miles driven in service of a charitable organization remains at 14 cents per mile.

Personal Exemptions ChangesFor 2015, the personal exemption amount has increased for certain taxpayers.  It has increased to $4,000 for taxpayers with adjusted gross incomes at or below $309,900 if married filing jointly or if a qualifying widow(er), $284,050 if a head of household, $258,250 if single, or $154,950 if married filing separately. The allowed personal exemption amount for taxpayers with adjusted gross incomes above these thresholds has been reduced from 2014 and may be calculated using a new Personal Allowances Worksheet.

Itemized Deductions Limitation:  Now in 2015, the total amount allowed for itemized deductions is reduced for taxpayers with adjusted gross income above $309,900 if married filing jointly or a qualifying widow(er), $284,050 if head of household, $258,250 if single, and $154,950 if married filing separately.

Alternative Minimum Tax (AMT) Exemption: The AMT exemption amount is increased to $53,600 ($83,400 if married filing jointly or qualifying widow(er); $41,700 if married filing separately).

Lifetime Learning Credit Income Limits: In order to claim a Lifetime Learning Credit of up to $2,000, your Modified Adjusted Gross Income (MAGI) must be less than $55,000, that’s down considerably from $64,000 in 2014 ($110,000 if married filing jointly, down from $128,000).

Adoption Credit or Exclusion: The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $13,400.  In order to claim either the credit or exclusion, your MAGI must be less than $241,010.

Earned Income Credit (EIC): You may be able to claim the EIC in 2015 if: three or more children lived with you and you earned less than $47,747 ($53,267 if married filing jointly), two children lived with you and you earned less than $44,454 ($49,974 if married filing jointly), one child lived with you and you earned less than $39,131 ($44,651 if married filing jointly), or a child did not live with you and you earned less than $14,820 ($20,330 if married filing jointly).

To learn more about how the 2015 tax year will affect your income tax planning, contact us at McRuer CPAs.

07/10/2013

Tax Relief When Disaster Strikes

Tornado graphicOklahoma tornadoes, Missouri floods, Hurricane Sandy, Arizona fires, and the Boston bombing tragedy; even if we haven’t been a victim ourselves, most of us have watched the reports of recent damage and loss of life with empathy and dismay.

How such disasters may affect income taxes seems a petty question to consider, yet tax officials warn while there may be some tax relief for victims, they must still pay their taxes and produce proper records for claims.  Keeping that in mind, it may be time for you to consider whether you’re prepared should disaster strike.

Here’s how it generally works:  When a disaster occurs that affects a group of people; local, regional, state and/or federal authorities may request and/or declare a state of emergency or another special provision defining the event’s parameters and its victims. Those who qualify may receive special assistance for recovery, low interest loans and grants, temporary housing assistance and more.

When it comes to taxes, the IRS identifies taxpayers and businesses located in the covered disaster areas and then applies automatic filing and payment relief.  For example, tax filing and payment deadlines have been postponed until September 30th for individuals affected by the deadly May 20th Oklahoma tornadoes.  Affected businesses have also been provided extended deadlines to file and pay payroll and excise taxes.

This kind of relief may also apply to taxpayers who live outside a disaster area, but whose books, records or tax professional are located inside the affected area.  Boston bombing victims, their families, first responders and others affected by the tragedy were given a three month extension for filing and paying taxes.

Those who have suffered uninsured or unreimbursed disaster-related losses may claim casualty loss deductions on this year’s return or on an amended 2012 return.  Claiming these deductions on either an original or amended 2012 return may result in a tax refund fairly quickly, but waiting to claim the losses on a 2013 return could result in greater tax savings.

What you can do:  There are precautionary steps that taxpayers are urged to take to avoid even more discouragement should they be a victim of a natural or manmade disaster.

Make certain your important documents and tax records are stored electronically and duplicated to a “safe” place that is either at a separate location or on a protected online secure server.  Make certain you back up your computer records and data frequently.

Remember to document your valuables and business equipment.  Consider compiling a room-by-room list or video.  This will help you remember what you own and prove the market value of losses.  Remember to include documentation of possessions you may have stored at another location.

Review your personal and business emergency plan annually.  Businesses that use payroll service providers should also check to make certain the provider has a fiduciary bond in place in case the payroll provider defaults.  Meanwhile, the IRS provides answers online to frequently asked questions following a disaster.

Imagine what may happen if there is no electricity nor phone service for one week.  What would happen to your operations, income and expenses?  If you would like more information on how we can help you put together an emergency plan, properly store your tax records, calculate fair market value on your possessions and more, please contact us at McRuer CPAs.

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