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BizBoost NewsVolume 7, Issue 18For distribution 2/26/18; publication 3/1/18
Record Retention…When to Keep, When to Shred
Do you know how long you are supposed to keep documents? Do you know when it’s safe to shred? Having this knowledge is the first step to good recordkeeping. By following these guidelines, you can keep your documents and files organized and updated. Avoid keeping things you don’t need – or discarding something you should have kept permanently!
First—categorize your documents. Examples include past tax returns and supporting documentation, medical information, purchase contracts for large assets, legal matters, employment information, insurance records, property deeds, etc.
Second—determine how you will store your records. Do you want to archive everything digitally? Do you prefer to keep paper copies? When considering how to store your records, think about worst-case scenarios such as fire, burglary, natural disaster, or even something as simple as snooping family members. Regardless of how you store your records, they should always be easily accessible.
Third—label documents with a “keep until” date. Refer to the table below for suggested lengths of time to keep your important documents. Labeling files with a “destroy” date will help ensure that your records will remain organized and current.
Fourth—destroy records that are no longer needed. To minimize the risk of identity theft, it is very important that you permanently destroy documents. If the items are paper, shred or incinerate them. If you have a large amount of shredding, consider taking it to a shredding facility. Occasionally, community organizations will offer complimentary document shredding on specific dates. If your documents are stored on a computer, use specialized software to remove files or delete an entire hard drive’s data. Another option is physically destroying the hard drive if you plan to stop using the computer entirely.
Having a system in place for your record retention will not only make it easier to locate important documents quickly and keep unnecessary documents to a minimum, but it will also give you something priceless—peace of mind.
TYPE OF RECORD
SUGGESTED LENGTH OF RETENTION
Business Records
I. Accounting Records
Bank Statements & Deposit
3 yrs
Individual Payroll Records
8 yrs
Payroll Timecard/Sheets
Expense Reports
6 yrs
Accounts Payable and Receivable Reports
Trial Balance Reports
Payment Vouchers (all)
All Canceled Checks
Audit Reports
7 yrs
General Ledgers and Journals
II. Sales, Purchase, Shipping Records
Sales Contracts & Invoices
Requisition/Purchase Orders
Export Declaration & Manifests
4 yrs
Freights, Shipping, & Receiving Reports
Bills of Lading Records
III. Personnel Records
Daily Time Reports
Withholding Tax Statements
Disability & Sick Benefits Records
Expired Contracts
Files of Terminated Personnel
IV. Corporate Records
Expired Notes, Leases & Mortgages
All Cash Books
Contracts & Agreements
Indefinitely
Property Deed & Easements
Registration of Copyrights and Trademarks
Patents
Corporate By-Laws and Minutes Books
Capital Stock & Bond Records
Stock Certificate & Transfer Lists
Canceled Checks on Asset Purchases
Canceled Checks for Taxes & Contracts
Proxies
Labor Contracts
Retirement & Pension Records
Tax Returns & All Work Papers
V. Insurance Records
All Expired Policies
Accident Reports
Safety Reports
Settlement Claims
10 yrs
Group Disability Records
Fire Inspection Reports
VI. Correspondence
General - All
Tax & Legal Communications
License & Traffic
Sale & Purchase
Personal Records
Tax Returns and Related
IRA Contribution Records
Permanently
Retirement/Savings Plan Statements
From 1 yr to permanently
Bank Records
Brokerage Statements
Until you sell the securities
Bills
Credit Card Receipts & Statements
From 45 days to 7 yrs (7 yrs for tax-related expenses)
Paycheck Stubs
1 yr
House/Condominium Records
From 6 yrs to permanently
***
Tweets
Insert a link to your newsletter, web site or blog before you post these:
Our latest blog: Record Retention…When to Keep, When to Shred. Subscribe here: [link]
Do you know when it’s safe to shred a document? Find out more: [link]
Biz Tip: To minimize the risk of identity theft, it is very important that you permanently destroy documents. [link]
By following these guidelines, you can keep your documents and files organized and updated. [link]
Having a system for your record retention will make it easier to locate important documents and keep unnecessary documents to a minimum [link]
Avoid keeping documents you don’t need or discarding something you should have kept permanently. Find out more here: [link]
Do you know how long you are supposed to keep documents? Find with our guide [link]
Record Retention…When to Keep, When to Shred. Sign up for our newsletter: [link]
Tax Tips Volume 7, Issue 16 For distribution 1/29/18; publication 2/1/18
Income Shifting: SAVE Thousands in Taxes
Want to save money in taxes WITHOUT working harder? One way is to shift income from a higher bracket taxpayer to a lower one or even a zero rate-bracket. Typically, splitting the income between family members by hiring them to work in the business will save thousands in taxes. An example is shifting income to your kids by hiring them. It is perfectly legal if done correctly, but if your children are unreasonably paid, the IRS will take notice. Let me give you an example of how this can work.
Jane owned a consulting business. She had two teenage sons that legitimately did work for the business. Some of the tasks they did included vacuuming the offices, emptying trash cans weekly, taking care of recycle and shredding documents, filing receipts, stuffing envelopes and doing yard work outside the office. Jane plans to pay her sons $5,000 each for the year. She was able to shift $10,000 from her higher tax rate to her son’s ZERO tax rate, which saved thousands. She plans to use this $10,000 to teach her kids about budgeting.
Also, this income shift helped with her personal cash flow because she has the kids help pay for groceries and set aside the money for college. Another thing she plans to do is to put money aside in a Roth IRA for the kids. While the company will need to pay some payroll taxes, the savings far outweigh the cost. Another benefit is that her sons will learn basic knowledge of how she runs her business. What a GREAT tax deduction for her business – and it was EASY!
Here are some facts and tips around income shifting:
Don’t get this strategy confused with gifting money to your child. When gifting, there is no work involved. Also, don’t get this shifting of income mixed up when parents move investment income (interest, dividends and capital gains) to their children. That is called the “kiddie tax.”
Income shifting works well under specific situations, and not everyone can meet the requirements. Depending on your situation, you may be able to take advantage of the income shifting opportunity, so feel free to reach out to us if you want to discuss your options.
Our latest blog: Income Shifting: SAVE Thousands in Taxes. Subscribe here: [link]
Can income shifting help you save money on taxes? Find out more: [link]
Biz Tip: Depending on your business entity, you can also reduce self-employment taxes with income shifting. [link]
Facts and tips around income shifting [link]
Depending on your situation, you may be able to take advantage of the income shifting opportunity. [link]
Typically splitting the income between family members will save thousands in taxes. Find out more here: [link]
How does income shifting work? [link]
Income Shifting: SAVE Thousands in Taxes. Sign up for our newsletter: [link]
Tax Tips Volume 7, Issue 14 For distribution 1/1/18; publication 1/4/18
Entertainment Deductions: Half the Fun?
Here are some basic rules you need to know to ensure that all your entertainment expenses are deductible:
1. Do you have an ordinary and necessary business reason for the entertainment?
2. Did you have a quiet business discussion before, during or after the event? No discussion, no deduction! You’ll need to explain why the entertainment would benefit your business in the future.
3. The discussion must be conducted in a business setting that allows an active business discussion. This could be a restaurant, for example. If the main entertainment is done in a non-business setting such as a bar with loud music or a cocktail party, you must speak about business before or after the event in a business setting.
4. Do you have proof? Keep documentation of who, what, where, why and how much. This documentation must be written within one week of the meeting.
Reasonable, Lavish, and Extravagant: So does the entertainment need to be reasonable? Can you get in trouble if the entertainment is lavish and extravagant? Actually, no. The only rule is that it is must be an ordinary and necessary expense. There are no parameters on how much you can or cannot spend. In fact, a self-employed business person spent over $60,000 on entertainment (rock concerts). His entertainment expense was disallowed – not because of the amount – but because he did not have documentation to support the deduction.
The IRS looks at how much business was generated as a result of the entertainment. There is no rule regarding the number of times you may entertain a potential client, but a wise business person would limit the frequency within reason. But then again, what is reasonable? Taking your spouse out on a date once a month would not qualify. However, you could consider taking your mother out if she is a potential client/customer who will buy services or products from you – nothing wrong with that!
50 percent vs. 100 percent Deductible: Almost all entertainment is deductible at 50 percent, meaning that if you spend $500, you receive only a $250 deduction. Here’s the good news – any entertainment that revolves around a sporting event is fully deductible; that includes any ticket or sports event, only if:
So a PGA tour event would be fully deductible because they donate the net proceeds to charity, but a ticket to a college or high school sports event does not qualify since that usually goes toward the coaches’ pay. Other events that may qualify for a 100 percent deduction are tennis, skeet shoots, ski tournaments and fishing tournaments, just to name a few.
Another thing to keep in mind is that generally, you will get a better deduction if you list an expense to a sporting event as a business deduction rather than a charitable donation. For the contribution to a charity, you can deduct only the amount that exceeds the benefit you received from the item (the value of the entertainment).
Additional fully deductible entertainment expenses are employee holiday parties, annual picnics or summer outings. For example, a service corporation rented a powerboat and was able to deduct 100 percent of the $41,000 expense since it did not discriminate between the owners and employees and it was deemed ordinary and necessary.
*Note: Create two accounts in your accounting system’s chart of accounts – one for 50 percent and the other for 100 percent deductible entertainment.
Be strategic: Plan a business meeting for a substantial amount of time (say two hours) and then go skiing. You cannot deduct your personal skiing with your family (unless your spouse is active in the business), but you can deduct the entertainment with people who you plan to do business with. After skiing, resume your meeting for another two hours and one minute.
Our latest blog: Entertainment Deductions: Half the Fun? Subscribe here: [link]
Do you have an ordinary and necessary business reason for the entertainment? Find out more: [link]
Biz Tip: 100% deductible entertainment expenses are employee holiday parties and annual picnics. [link]
Here are some basic rules you need to know to maximize your entertainment expense tax deduction. [link]
What you need to know about business entertainment deductions. [link]
The IRS looks at how much business was generated as a result of the entertainment. Find out more here: [link]
Are all your business entertainment expenses deductible? [link]
Entertainment Deductions: Half the Fun? Sign up for our newsletter: [link]
Tax Tips Volume 7, Issue 12 For distribution 12/4/17; publication 12/7/17
1099s—The Ins and Outs
Processing 1099s can be confusing and frustrating. Here are some facts you need to know!
General Rule: If you pay someone more than $600 in a calendar year for services, not material/product, then you are required to provide a 1099 showing the amount you paid. One tip is to collect a W-9 at the time of payment so you know if the business is a sole proprietorship, LLC or corporation. If it is a corporation, then no 1099 is required. The 1099 is due January 31st. The 1096 form is not required if you E-File. If you file by paper, it is required.
Addressing the 1099: If the person you paid uses their Social Security number as a tax ID number, then the person’s full name must be on the first line of the 1099. If you list the business name by mistake, then you will receive a letter from the IRS saying that the name and ID do not match. Then the IRS may require you to withhold money from future checks.
Reimbursed Expenses: If you pay a subcontractor for expenses incurred, do NOT include that amount in box 7. If you receive a 1099 from someone with reimbursed expenses, like travel or postage, don’t worry. Show the full amount of income on your tax return and then show the full amount of expenses and it will net out the same. If you lower the 1099 amount on your return to “correct” it, that will trigger an audit.
Strict Classification Rules: If you hire a subcontractor, be sure that the state won’t deem the person as an employee. A few indications to strengthen your case are:
Remember, there are fines, penalties, and back taxes at the federal and state levels to pay if a worker is misclassified. Here is a link to a 20-factor test to determine if the worker is an employee or a contractor: https://www.mdc.edu/hr/Operations/AFS/IRSFactorTest.pdf
Penalties: If you miss the deadline and file within 30 days, the penalty is $50. If you file after 30 days of the missed deadline, the penalty is $100. If you file after August 1, or do not deliver, or have an incorrect name and taxpayer identification number combination, the penalty is $260. Intentional disregard results in a penalty of $530.
Extensions: Extension on E-Filing –Form 8809: you will receive an automatic 30 day extension as long as you request prior to the deadline of January 31st. You can find the form on the IRS website and either fax or mail it in.
Extension on Recipient Delivery: there is no specific form; you will need to send a letter to the IRS. It is not an automatic extension. If granted, you will be provided with an extra 30 days for delivery; however, if not granted, you will still receive a 10-15 day grace period.
1099-K Rules: There has been a lot of confusion regarding the new 1099-K rules. All merchant companies that process credit card payments are required to issue 1099-Ks to the seller. It can be for one transaction for any amount. The main reason for this law is to capture payments going through eBay, PayPal and Amazon. However, now the common business owner will get a 1099-K as well if their clients or customers pay them with a credit card. Here is the confusing part: businesses will provide a 1099-MISC for payments made with a check or cash and the merchant company will process 1099-K’s made with a credit card. Let’s give some examples to clarify:
Example 1 – You pay a subcontractor $700 for services. If you paid them with a check, you issue them a 1099-MISC.
Example 2 – You pay a subcontractor $700 with a check and $800 with a credit card. You will issue them a 1099-MISC for $700 and the subcontractor’s merchant company will give them a 1099-K for the $800.
Example 3 – You pay a subcontractor $300 with a check and $800 with a credit card. The safe answer is to still issue a 1099-MISC for $300 because the combine total payment to the subcontractor (check and credit card) was over the $600 amount.
Oddball Clarifications: If the contractor is NOT a US citizen and lives in another country, have them fill out a W-8BEN and keep this on file. Prepare a 1099, but there will be no tax ID number on the form. If questioned by the IRS, show them a copy of the W-8BEN. There are no withholding requirements for those that work outside the United States.
If a foreign contractor performs services in the U.S., there are 3 conditions that need to be met:
If any of the above conditions are not satisfied, a principal has to report and withhold income of a foreign independent contractor. However, the withholding can be avoided if the country of the contractors has a tax treaty with the U.S.
If the 1099 comes back to you undelivered, keep a copy for your records to show the attempt. If the contractor has already performed their services and you cannot get the contractor to fill out the W-9, keep a log of the attempts to contact them by phone, email or letter. The IRS has penalties for not sending the 1099 and if you show intent, hopefully there will be grace in the penalties.
If you find you made a mistake on the amount or tax ID number, you can always correct the form and re-send it by checking the “Corrected” box.
Corporations do NOT get 1099s, but some people are confused if they should send a 1099 to LLCs. Send a 1099 to single-member LLCs and multi-member LLCs (partnerships). 1099s are required to ALL attorneys regardless of their entity type or amount paid!
Our latest blog: 1099s—The Ins and Outs. Subscribe here: [link]
Confused or frustrated with filling out your 1099s? Find out more: [link]
Biz Tip: 1099s are required to ALL attorneys regardless of their entity type or amount paid. [link]
What you need to know about dealing with 1099s [link]
Processing 1099s can be confusing. Here are some facts you need to know. [link]
Confused about the new 1099-K rules? Find out more here: [link]
Need help filing your 1099s? [link]
1099s—The Ins and Outs. Sign up for our newsletter: [link]
Tax Tips Volume 7, Issue 10 For distribution 11/6/17; publication 11/9/17 The Tax Benefits of Health Savings Accounts
If you have a high-deductible health insurance plan, you probably know how important it is to have a Health Savings Account (HSA) to save for those medical expenses that come out of your pocket.
HSAs offer great tax savings if you qualify. What’s so good about them? Well, unlike the well-known flexible spending accounts that operate on the “use it or lose it” principal, you can accumulate funds in HSAs over a period of years without losing your unspent balance. Of course, HSA’s are tax-deductible savings plans, and if you have an employer that offers one, you can deduct the funds from your check with pre-tax dollars. Your HSA can also earn interest and dividends, all of which are tax-exempt at the federal level. And finally, your withdrawals from your HSA are tax-free as long as you use the funds for qualified medical expenses.
Qualified expenses include such things as your health insurance deductible, certain medical equipment, vision care, dental care and prescriptions, among others. Keep in mind, though, that tax-free withdrawals are allowed only for prescription drugs. Over-the-counter drugs do not qualify.
You must be enrolled in a high-deductible insurance plan in order to be eligible for an HSA. You also cannot be covered by another health insurance plan (such as a PPO provided by your spouse’s employer). For 2017, the insurance plan must have a deductible of at least $1,300 for self-only coverage and $2,600 for the family. You can contribute up to $3,400 as an individual to your HSA in 2017. Family contributions max out at $6,750. If you are 55 or older at year end, you are entitled to make a catch-up contribution of an additional $1,000 into the HSA.
Taking money out of your HSA for anything other than qualified medical expenses means you will have to pay income tax on the funds. Additionally, you get hit with a 20% non-qualified withdrawal penalty…ouch!
So how do you set up an HSA if you don’t already have one?
Our latest blog: The Tax Benefits of Health Savings Accounts. Subscribe here: [link]
How do you set up a Health Savings Account? Find out more: [link]
Biz Tip: Your Health Savings Account can earn interest and dividends, all of which are tax-exempt at the federal level. [link]
If you have a high-deductible health insurance plan, you probably know how important it is to have a Health Savings Account. [link]
Health Savings Accounts help you save for those medical expenses that come out of your pocket. [link]
There are many tax benefits of Health Savings Accounts. Find out more here: [link]
Health Savings Accounts offer great tax savings if you qualify. What’s so good about them? [link]
The Tax Benefits of Health Savings Accounts. Sign up for our newsletter: [link]
