When you prepare your business tax returns and claim deductions, you likely understand the importance of gathering your receipts to substantiate the expenses you claim. While you likely know that you need to keep copies of your returns for several years, you might wonder how long you should also keep your receipts. Here is what you need to know about keeping copies of your receipts from our accountants at TMD Accounting.
Complete and accurate financial record keeping is crucial to your business success. Good records provide the financial data that helps you operate more efficiently. Accurate and complete records enable you to identify all your business assets, liabilities, income, and expenses. We’ve compiled a list of records you should keep and the length of time you should keep them.
There are other records you should keep, even though they don’t appear to have any use for your tax returns. Here are a few examples:
- Insurance policies, to show whether you were to be reimbursed in case you suffer a casualty or theft loss, have medical expenses, or have certain business losses.
- Records of major purchases, in case you suffer a casualty or theft loss, contribute something of value to a charity or sell it.
- Family records, such as marriage licenses, birth certificates, adoption papers, divorce agreements, in case you need to prove change in filing status or dependency exemption claims.
- Certain records that give a history of your health and any medical procedures, in case you need to prove that a certain medical expense was necessary.
These categories are the most universal and should cover most of your recordkeeping needs. Everyone’s needs are unique, however, and there may be other records that are important to you. Skimming through our Tax Library Index might highlight other categories that apply to you.
You may be able to take an immediate expense deduction of up to $510,000 for 2017 ($500,000 in 2016), for equipment purchased for use in your business, instead of writing it off over many years. There is a phaseout limit of $2,030,000 in 2017 ($2,010,000 in 2016). Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE IRA plan and deduct your contributions (investments).
You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
- One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
- The spouses’ incomes are about equal.
Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.
In 2017 (as in 2016), medical and dental expenses are deductible to the extent they exceed 10 percent of your adjusted gross income (AGI). As such, many people are not able to take advantage of them. There is, however, a way to get around this if your employer offers a Flexible Spending Account (FSA), Health Savings Account or cafeteria plan. These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars.
If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the full fair-market value of the property.
If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).
For growth stocks you hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.
Interest on state or local bonds (“municipals”) is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipals will often be greater than from higher paying commercial bonds after reduction for taxes.
For high-income taxpayers, who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax.
If you answer yes to any one of the following questions, you should take action:
- Have you run several credit cards up to the limit?
- Do you frequently make only the minimum monthly payments?
- Do you apply for almost any credit card you are offered–without checking out the terms?
- Have you used the cash advance feature from one card to pay the minimum payment on another?
- Do you use cash advances (or a credit card) for living expenses such as food, rent, or utilities?
- Are you unable to say what your total debt is?
- Are you unable to say how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you have been paying?
If you find several of these statements describe your credit habits, it may be that you need to take steps to manage your debt before bill collectors start calling and your credit history is endangered.
When you need supporting documents, it can be a broad category. Remember, you need to have itemized proof of those business purchases. In many cases, this is a printed receipt, but it can also include:
- Bank statements
- Credit card statements
- Canceled checks
- Itemized invoices of digital payments
- Real estate closing statements
Click here to learn more about what kind of receipts you need to keep for your bookkeeper.
Receiving a notice of audit can inflict fear on any small business owner. It can be even worse if you receive an audit notice and do not have any receipts to support the deductions you have claimed for your business. If you are being audited and do not have receipts, there are some ways you can reconstruct your records to support your expense deductions. Here is what you need to know from our tax professionals at TMD Accounting.
The general statute of limitations for an IRS audit is three years under 26 U.S. Code § 6501, which means that the IRS can audit your tax returns for the most recent three years. However, there are multiple exceptions to this general rule. According to the IRS, it will generally not go back more than six years unless the agency suspects that you might have committed fraud or have failed to file your required tax returns. Learn more here.
When it comes time to budget for your new restaurant, you need to understand those expenses. Some of the apparent expenses are labor and food costs. Plus, there are other expenses that you need to consider, such as utilities, equipment upgrades, capital improvements, and supplies. If you want to know the biggest expense for a restaurant in South Jersey, read this article.
Before you can calculate depreciation, you should know about the various types. There are five types of depreciation, including:
- Units of productions
- Sum of the years’ digits
- Declining balance
- Double-declining balance
Click here to learn how to determine these values.
Accountants play a vital role in almost every business. Law firms are no exception. Many lawyers don’t want to handle monetary transactions or keep up with their financial records.
With all that in mind, here are some of the major roles that accountants can play in your law firm:
- Provides Professional Financial Advice
- Helps With Taxes
- Deals With Outside Parties
- Handles the Law Firm’s Payroll Process
- Chooses the Right Financial Tools
Click here to learn more about the roles accountants have at law firms.
Here is a summary of the various taxes that may have to be paid on the death of a family member:
Federal Estate Tax. Amounts passing to a surviving spouse, and amounts passing to charity, are generally exempt from estate tax. Estate tax is generally only due on estates which, after reduction for what goes to spouse and charity, exceed the unified credit exemption equivalent, which in 2017 is $5,490,000 ($5,460,000in 2016).
Contact the IRS for a Form 706 if you need to file an estate tax return. A federal estate tax return must be filed and taxes paid within nine months of the date of death absent extension.
State Death Taxes. State laws vary. Many states impose estate taxes, which may apply in addition to federal estate taxes, or may apply even when federal estate taxes don’t. Some states impose inheritance taxes, which are on individuals who receive inheritances, rather than on the estate.
Income Taxes. The federal and state income taxes of the deceased are due for the year of death. The taxes are due on the normal filing date of the following year unless an extension is requested. The spouse of the deceased may file a joint federal income tax return for the year of death. A spouse with a dependent child may file jointly for two additional years. The IRS’s Publication 559, “Survivors, Executors, and Administrators” may be helpful.
Yes, the surviving spouse can elect to file a joint return provided they did not remarry prior to the end of the tax year.
Generally, no. Proceeds of life insurance policies are not taxable income unless the recipient paid for the right to receive them. For example, if you purchased a policy as an investment.
Generally, yes. This is known as income in respect of a decedent. Since the deceased has not paid income tax on the distribution, the tax is owed by the recipient. If the value of the account was included in the decedent’s estate tax return, you may be entitled to a deduction for a portion of the estate taxes paid.
Assets held jointly with right of survivorship will transfer by law to the joint holder. Insurance policies or retirement accounts with a designated beneficiary will go to that beneficiary. Assets owned solely by the decedent will transfer according to state law. This is known as intestacy. These laws vary by state, but generally, give preference to the spouse and children.
An individual who is determined by the Social Security Administration to be “disabled” receives an Award Letter, which is a notice of decision that explains how much the disability benefit will be and when payments start. It also tells you when you can expect your condition to be reviewed to see if there has been any improvement.
If family members are eligible, they will receive a separate notice and a booklet about things they need to know.
Under the Social Security disability insurance program (title II of the Act), there are three basic categories of individuals who can qualify for benefits on the basis of disability:
- A disabled insured worker under full retirement age.
- An individual disabled since childhood (before age 22) who is a dependent of a parent entitled to title II disability or retirement benefits or was a dependent of a deceased insured parent.
- Disabled widow or widower, age 50-60 if the deceased spouse was insured under Social Security.
- Been disabled or expected to be disabled for at least 12 months
- Has filed an application for benefits, and
- Completed a five month waiting period; however, the 5-month waiting period does not apply to individuals filing as children of workers. Under SSI, disability payments may begin as early as the first full month after the individual applied or became eligible for SSI. In addition, if you become disabled a second time within five years after your previous disability benefits stopped, there is no waiting period before benefits start.
Under title XVI, or SSI, there are two basic categories under which a financially needy person can get payments based on disability:
- An adult age 18 or over who is disabled.
- Child (under age 18) who is disabled.
For all individuals applying for disability benefits under title II, and for adults applying under title XVI, the definition of disability is the same. The law defines disability as the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
Meeting this definition under Social Security is difficult. Insured means that you have accumulated sufficient credits in the Social Security system. Visit the Social Security Administration’s Website to apply for an estimate.
If you are getting disability benefits on your own work record, or if you are a widow or widower getting benefits on a spouse’s record, there is a five month waiting period and your payments will not begin until the sixth full month of disability. The 5-month waiting period does not apply to individuals filing as children of workers. Under SSI, disability payments may begin as early as the first full month after the individual applied or became eligible for SSI.
If the sixth month has passed, your first payment may include some back benefits. Your check should arrive on the third day of every month. If the third falls on a Saturday, Sunday, or legal holiday, then you will receive your check on the last banking day before that day. The check you receive is the benefit for the previous month.
Some people who get Social Security have to pay taxes on their benefits. The rules are the same regardless as to whether Social Security benefits are received due to retirement or disability. If you file a federal tax return as an “individual” and your combined income is more than $25,000, you have to pay taxes. Combined income is defined as your adjusted gross income + Nontaxable interest + Â½ of your Social Security benefits. If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000. If you are married and file a separate return, you will probably pay taxes on your benefits. Social Security has no authority to withhold state or local taxes from your benefit. Many states and local authorities do not tax Social Security benefits. However, you should contact your state or local taxing authority for more information.
Whether you use a professional or not, here are some of the best ways to manage your restaurant’s finances.
- Budget Your Expenses
- Maintain a Cash Flow Statement
- Keep Payroll and Food Costs Under Control
- Check Your Reports Daily
Managing a restaurant’s finances is tricky. With these tips, you can get a clearer view of your restaurant’s financial picture.
If you are ready to have a clearer outlook on your financial picture, let’s look at the five types of accounts found in accounting.
- EquityCompanies will use several accounts to keep track of their financial records. Some of the most common accounts include assets, expenses, liabilities, equity, and income. These accounts are used for different purposes, and you must update them daily or weekly. Click here to learn more about the different accounts in accounting.
With some basic organization and preparation, you can make filing your business taxes less of a hassle. Gather the following documents for your accountant:
- Identification information – Social Security number and identification card (driver’s license, state-issued ID, military ID, green card, passport, or etc.)
- Past year’s tax return if applicable
- Profit and loss statements
- Gross receipts from services or sales
- Accounts receivable if using the accrual accounting method
- 1099-INT for business accounts or business bank statements
- Information about business assets
Click here to find out what other documents you need when filing your business taxes.
An accountant can help you write a business plan. Yes, you need a business plan, even if you are not looking at funding. If your business plans to rent out manufacturing, retail, or office space, the landlord could require you to have this plan. All successful businesses have a predetermined plan in place. With this plan, you can reach those goals rather than trying to wing it. Click here to learn more about why every small business needs an accountant.
There are several methods to determine your construction depreciation.
- Cost Value
If you want to know the value of your construction equipment, you need to know its purchasing price.
- Salvage Value
With salvage value, that is an estimated sale amount for your asset. Mostly this value is calculated at the end of its useful life.
- Book Value
Book value is the value of the construction equipment used for tax purposes and not the resale value.
Click here to learn more about how depreciation of construction equipment is calculated.
Medical bills can balloon when you have medical emergencies that your insurance does not fully cover. Fortunately, you may obtain some relief by deducting a portion of these expenses on your tax return under the Internal Revenue Code. In order to take advantage of this deduction, it is important that you understand what is considered to be a medical expense and how to correctly claim the deduction. Click here to learn more.
Bookkeeping involves keeping the books of a business. Bookkeepers record all of the financial transactions and financial documents of the business. The importance of bookkeeping is that it helps to keep the records that businesses need.
Accounting involves collecting, classifying and manipulating financial information for individuals and organizations. While accountants may perform some bookkeeping tasks, their jobs involve much more detailed work in analysis, reporting and advising.
Click here to learn more about the difference between bookkeeping and accounting.
Committed To Excellence For Nearly 40 Yrs
Thomas M. DiTullio has nearly 40 years of experience. Tom and his staff have a well deserved reputation for outstanding service in Gloucester County. Many of Tom’s clients have used his services for over 20 years. In addition to tax services, Tom DiTullio Accounting also offers payroll, and financial management. We offer many programs that are flexible, reliable, and most of all affordable.