Major Tax Deadlines
Take advantage of business tax deductions
Mileage rates increase
Phone savvy in '07
Welcome to the inaugural issue of Craft, Noble and Company's e-news update. Our clients have told us they appreciate receiving tax updates, notification of filing deadlines and other informative business and tax news. So we've designed a more convenient and timelier way than our mailed out newsletter, Front of the File. If you would prefer to receive a print copy of each quarterly e-newsletter, please call our office to place that request.
Likewise, if you know a friend or colleague who might be interested in receiving this e-newsletter, just click the "Forward to a Friend" button. Privacy and confidentiality is a hallmark of our business, so you can be assured your name or address will not be shared with anyone.
Deciding which records to keep and for how long can be a confusing process. A well-organized system will help you retain important paperwork and minimize the clutter. Use legal requirements and your common sense as guidelines for how long to hold on to records.
You should keep tax records for at least as long as it is possible for tax authorities to audit your return. Generally, the IRS has three years after the return is due or filed, whichever is later, to examine your return and assess additional tax. This is called the “statute of limitations.” If you’ve made a major error on your return (defined as omitting more than 25% of your gross income), the IRS has six years to examine your return. There is no statute of limitation for fraudulent filing or for returns that are not filed at all.
• Gather the needed tax documents for filing your 2006 tax return—the W-2s, 1099s, and other forms from your employer, broker, bank, etc. If you detect errors, notify the sender and ask for a corrected copy.
• There is still time to make 2006 IRA contributions. If your 2006 IRA wasn’t fully funded by December 31, 2006, and you make any IRA contributions prior to April 16, 2007, designate to the bank or trustee that these 2007 contributions are for 2006 (up to the maximum allowed). You can then deduct these amounts on your 2006 return for a quicker tax benefit.
• File business returns on time. The deadline for filing partnership returns is April 16, 2007. Calendar-year corporation tax returns are due by March 15, 2007.
To be on the safe side, keep your tax records for seven years after a tax return is filed.
The IRS does not require that you keep your records in any particular way. The only requirement is that your records allow you and the IRS to determine your correct tax liability. Keep checks, receipts, and other records that document the income and deductions you report on your tax return. Copies of tax returns themselves should be retained permanently.
Investment records
Investment records generally should be kept until the investment is totally liquidated, plus a period of seven years. Keep any records for taxable accounts that show reinvested dividends. You can usually toss monthly or quarterly investment statements if you receive a comprehensive annual statement.
Investment real estate.
Keep all documents relating to purchases of property, along with substantiation for improvements made to the property. Keep written appraisals and tax depreciation schedules.
Individual retirement accounts.
Keep copies of Forms 5498, 8606, and 1099R until all money has been withdrawn from your IRAs. Good records are necessary so that you aren’t taxed on nontaxable withdrawals.
Home
Expenditures for your home fall into two categories: “repairs” (such as routine yard maintenance and painting) and “improvements” (usually big-ticket items such as room additions).
Discard repair receipts once the warranty period expires, but keep receipts for improvements indefinitely. Improvements add to the tax basis of your property. Despite the $250,000 capital gain exclusion amount ($500,000 for joint filers), substantial increases in market value could make you liable for capital gains tax when you sell your home. Complete records of your home’s original cost plus improvements will help reduce any taxes due.
Insurance
Keep your current policies and 12 months’ worth of cancelled checks and statements. Ask your insurance agent about discarding expired policies. Your liability for prior years can vary.
Estate planning documents
In your home, keep a copy of your current will, any trusts, and any special directives. Give the originals to your attorney, and consult your attorney about destroying all out-of-date documents.
Keep it simple. In most cases, you don’t need an elaborate recordkeeping system to keep your affairs in order. File tax returns separately by year, and file investment records by broker. For expenses, even an accordion file tabbed by category works wonders.
Contact Craft, Noble & Company if you have any questions or need assistance in setting up a recordkeeping system that works for you.
• Charitable Contributions. Get the substantiation you’ll need for charitable contributions of $250 or more that you made last year. A cancelled check isn’t enough; you need a written receipt from the charity for a tax deduction.
If you received something from the charity in return for your contribution, a written statement is required on gifts of more than $75.
If you donated a vehicle, boat, or airplane to a charity, your deduction will be limited to what the charity sold your item for. The charity should give you Copy B or C of IRS Form 1098-C to substantiate your deduction.
• Check your children’s need to file a 2006 return. Generally, your child must file a 2006 tax return if he or she had wages of more than $5,150, self-employment earnings over $400, or investment income (such as interest, dividends, or capital gains) over $850. If your child had both earned and investment income, other thresholds apply. Also, your child must file a return to receive a refund if one is due.
• Make your 2007 IRA contributions as early in the year as possible to maximize tax-deferred growth.
• If you’re among the many taxpayers who get a large tax refund this year, do yourself two favors: (1) invest the refund instead of spending it, and (2) adjust your withholding for 2007 so your money can be invested for you rather than the government.
Top of Page | Go to Page 2
