A common New Year’s resolution is to “declutter”, go through those boxes and drawers and clean out the piles of excess paper. Old paper documents can be a source for identity theft. Piles of paper may provide no useful information while actually posing a financial threat. At least once a year you should go through your files and shred anything you no longer need. But what should be kept and how long should you keep it?
Tax Returns. The general rule is that tax returns with supporting documentation should be kept for seven years. Those who are especially cautious keep the return permanently but dispose of the supporting documents after seven years.
Bank Statements. Keep these for a year. Since check images are returned rather than cancelled checks, you may want to keep the images for tax payments and large purchases longer. The bank can provide copies of cancelled checks when required.
ATM Receipts, Deposit Receipts. Keep until you balance your bank statement.
Credit Card Statements. Keep these for a year.
Investment Documents from 401k’s, IRA’s or Brokerage Accounts. When you buy and sell stock, you receive trade confirmations. These need to be kept until the transaction appears on the investment statement. The investment and year-end statements should be kept permanently. The myriad of other paper related to investments (prospectus, proxy notices, etc.) only need to be kept if you are going to act on it.
Pay Stubs. Most pay stubs contain current and year-to-date information. If this is the case you need only save the most current. At most, save until you receive and verify your W-2.
Medical Bills and Insurance. These should be kept with the tax returns.
Home Insurance. Keep policies from current and prior insurers for at least five years. If you think you might have issues in the future, keep ten years.
Home Repairs and Renovations. Depending on the extent of the work, receipts for repairs should be kept up to 10 years. Home renovations impact the cost basis of your home and should be kept until you sell your home. The documentation must be kept for as long as the tax return on which the sale was reported is kept.
Mortgage Documents. Keep for the duration of the mortgage. On payoff, you should receive a loan satisfaction letter. Keep this until you sell the home.
Utility Bills. Only need to be kept if you are writing off the expense on your taxes.
Receipts. Keep credit card receipts until you verify the purchase on your credit card statement. Keep receipts for any purchase you may return if you are not satisfied with the product, usually a minimum of 30 days. Receipts for products with a longer warranty should be kept with the warranty until the product is discarded.
The above are general guidelines to record retention for personal papers. The first effort to organize may seem difficult. But once accomplished, an annual sift, file, shred task will go more quickly then you would think.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
Thursday, January 13, 2011
Thursday, December 2, 2010
New York State Sales Tax Audits
Adequate Books and Records
New York State
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
New York State Department of Tax and Finance begins a sales tax audit by requesting the taxpayer’s books and records. If the auditor doesn’t consider the records “adequate”, he has extensive discretion in making a reasonable calculation of taxable sales. It is important that you maintain and organize your records so they are “adequate’ for an audit.
So what is adequate?
There are specific requirements in recording sales tax and maintaining records. The required records include:
- Exemption documents
- Sales slip, invoice, or other original sales document
- Cash register tape
The sales record must provide detail to determine tax due and collected for each sale. Invoices and sales slips must have items sold indicating which are taxable and a separate line item for sales tax. The cash register tape must also have this level of detail. A tape with total sales may not be deemed adequate. Any deductions, credits, or refunds must also be supported with detail records
Financial records related to the preparation of the sales tax return must also be maintained and available for the audit. These include tax worksheets, general journal, ledgers, sales and purchase journals and schedules accounting for the difference between gross sales and services and taxable sales and services.
Having the records is not sufficient to meet the adequacy test. The records must be organized, such as by date, invoice number, or other ordering method, to permit direct reconciliation of the sales documents with the entries in the books and the sales tax return.
The penalties for not maintaining adequate records are substantial. The taxpayer can be assessed up to $1000 for the first quarter of the failure and up to $5000 for each subsequent quarter. A taxpayer audited for a three-year period could face up to $56,000 in record-keeping penalties.
If the taxpayer has adequate records, the auditor may take several approaches to review the accuracy of the records. He may examine a representative sample of transactions, matching the sales transactions to the journals, following through to the sales tax return. The sample might be a specific time period, such as a full month, or it might be specific group transactions, say for one client, or a combination. If errors are found, the error rate for the sample is applied to the entire audit period. For instance, if the auditor found the sample resulted in taxable sales 5 percent higher than reported, taxable sales for the audit period would be increased by 5 percent
If the books and records are deemed inadequate the auditor may use a variety of methods to calculate sales tax liability. For example, the auditor could extrapolate from industry averages or use indices including rent, utilities, or markup of goods sold. It is difficult to contest the auditor’s conclusions when your own records are not used.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
Tuesday, November 2, 2010
Starting a Business in a Recession
Starting a business in a recession might seem counter-intuitive. However, history shows that economic slow downs have been fertile ground for new business start-ups. Many companies started in economic downturns including Google and General Electric. A good idea is a good idea. A recession might just be the right time to bring that idea to market.
Why?
Financial need is a strong impetus. Maybe you are unemployed or underemployed. You’ve been mulling over a business venture for years but you never had time or you felt tied to a secure paycheck. The recession might just be the push you need.
Getting started is cheaper. Prices often drop in a recession. You’ll find or be able to negotiate good prices on equipment and supplies. Office space is plentiful and less expensive. To keep costs low you might want to start your business in your home.
With high unemployment, qualified talented people are available. They, like you, will be highly motivated to make the business work.
It is easier to find partners. Maybe you don’t want to go it alone. There are others like you who would savor the opportunity to start something new. A partner would spread the investment risk and could complement your talents.
Friends and family may be looking for investments other than the stock market. Returns on money market accounts and other saving vehicles are extremely low. If you have a clear, viable business plan, your family and friends may help finance some of your venture.
Competitors are weakened. The status quo may not be working for companies. Operating companies are more willing to look for changes in suppliers, seeking more cost effective and innovative partnerships. A new company will have a chance to step in.
You’ll face less competition. Most people are reviewing why they can’t or shouldn’t start a new business now.
Starting in a slowdown shows your faith in business. Your optimism will help sell your product. Laying the groundwork in a recession will position you to take advantage of the inevitable upturn.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
Why?
Financial need is a strong impetus. Maybe you are unemployed or underemployed. You’ve been mulling over a business venture for years but you never had time or you felt tied to a secure paycheck. The recession might just be the push you need.
Getting started is cheaper. Prices often drop in a recession. You’ll find or be able to negotiate good prices on equipment and supplies. Office space is plentiful and less expensive. To keep costs low you might want to start your business in your home.
With high unemployment, qualified talented people are available. They, like you, will be highly motivated to make the business work.
It is easier to find partners. Maybe you don’t want to go it alone. There are others like you who would savor the opportunity to start something new. A partner would spread the investment risk and could complement your talents.
Friends and family may be looking for investments other than the stock market. Returns on money market accounts and other saving vehicles are extremely low. If you have a clear, viable business plan, your family and friends may help finance some of your venture.
Competitors are weakened. The status quo may not be working for companies. Operating companies are more willing to look for changes in suppliers, seeking more cost effective and innovative partnerships. A new company will have a chance to step in.
You’ll face less competition. Most people are reviewing why they can’t or shouldn’t start a new business now.
Starting in a slowdown shows your faith in business. Your optimism will help sell your product. Laying the groundwork in a recession will position you to take advantage of the inevitable upturn.
IRS Circular 230 Disclosure
Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.
DISCLAIMER
Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.
Subscribe to:
Posts (Atom)