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Monthly Client Newsletter | August 2011
A s summer heat continues its grip on the nation, the business of staying cool with better financial knowledge will help us all. This month's newsletter discusses recent law changes and provides useful information on record keeping and disaster preparedness.
- Those Pesky Records. What do I need to keep?
- Business Travel Reimbursement Rules Change
- Be Prepared for a Quick Disaster Recovery
- Who Pays What?
Those Pesky Records. What do I need to keep?
What do I need to keep?
Each of us needs to keep records that substantiate our tax return or other important life events for as long as they are needed. So what does this mean?
The basic retention period. Federal tax return substantiation is generally three years from the later of the tax return filing due date OR the actual filing date.
State guidelines could be different. Understand your state and local audit timelines. Often states can review tax returns after your federal return is officially closed to a potential audit.
Keep some things forever. Some items should be kept indefinitely. These include, but are not limited to, copies of your 1040 tax return, major asset purchases and sales (i.e. home mortgage, home closing documents, investment/stock transaction documentation, major asset purchase/sale documents, insurance documentation, and birth/death/marriage certificates).
Keep valuable item receipts. Keep records of any other valuable items purchased. This includes jewelry and other collectables.
Finding the cost of stocks just got easier...and trickier. Stock and Investment companies are now required to report the cost of your investments to the IRS. So you will not need to dig around for old transaction information to prove what you paid for your investment. On the other hand, any errors on your investment statement also get sent to the IRS, so make sure the information provided is correct or it may create an audit trigger.
Others may want your documentation. You may need records for non-tax related purposes. Copies of divorce decrees, record of insurance, and home sale closing paperwork are common examples of documents needed for other reasons.
Federal recordkeeping guidelines could become longer. Federal guidelines for record retention are generally 3 years. However, errors on your tax return for over 25% of the tax obligation require record retention of 6 years. If fraud is determined, the record holding period is indefinite.
Business Travel Reimbursement Rules Change
Effective August, 2011 the IRS is eliminating one of the per-diem methods allowed for reimbursement of qualified business travel expenses for Lodging, Meals, and Incidental Expenses. The method being eliminated is called the "High-Low Method for Substantiating".
What you need to know
No business travel. If you do not travel or have travel expenses reimbursed by your employer, then this rule change does not apply to you.
Some business travel.
* Actual Expense Reimbursement. Most business travel expenses reimbursed by an employer are based upon expense reports with attached receipts for actual expenses justifying the reimbursement. If this is the method used by you the change also will not impact you since you request no "per diem".
* Per Diem. If you receive a per diem for your travel then the amount you receive and the method you use for expense reimbursement may be changing. The simplified per diem method called the "high-low substantiation method" is being dropped. This simplified method was used by many in place of the regular federal per diem rates because it reduces the number of locations an employer or employee has to look up to determine the correct amount of reimbursement.
Not sure which method your employer uses? Ask your human resource department, they should be aware of the change as incorrect expense reimbursement amounts could cause them problems.
Be Prepared for a Quick Disaster Recovery
Floods, Fire, Hurricanes, and Tornados. We seem to read about these natural calamities every day, but rarely think that it will happen to us. But what if it did? Are you prepared? Here is a list of ideas that will help make sure your recovery from a disaster is less painful.
Want to know more? The Federal Emergency Management Agency (FEMA) has a great information resource for disaster preparedness called "Are You Ready" which can be found at www.fema.gov/areyouready
Who Pays What?
In a continuing effort to provide information as we listen to the budget and debt debates out of Washington D.C., outlined here are some IRS statistics on who pays individual income taxes. The information provided here is the most current available information.
How to read: The top 10% of Adjusted Gross Income (AGI) on 2008 tax returns reported approximately 45.8% of the income and paid 70% of the total individual income tax collected in 2008.1
|The top 1% of wage earners paid a little over 1/3 of the Federal individual income taxes.|
|The largest gap between income representation and amount of tax paid is in the top 10%. The top 10% of wage earners have approximately 45.8% of claimed income, but pay approximately 70% of the individual income taxes.||The Tax Policy Center estimates that 47% of filed tax returns paid no Federal Income tax in 2009.|
Note: The above figures net out "negative" income tax returns for those who filed a tax return, but received more money back than their income.
1Source: Internal Revenue Service. Selected Income and Tax Items, by Size and Accumulated Size of Adjusted Gross Income. All figures are based on estimates from sampling conducted by the Internal Revenue Service using 2008 tax filing data.
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