The Online Advisor

Sandler, Rosengarten, Denis, & Berger, LLP.
Certified Public Accountants

80 Cuttermill Road
Great Neck, NY 11021
Phone: (516) 773-4000
FAX: (516) 773-4082
info@srdbcpa.com

How long should records be kept?

Just how long should tax related records be kept is partly a matter of judgment and a combination of state and federal statutes of limitations. Federal returns can be audited for up to three years after the date of filing (six years if underreported income is involved), so all records substantiating tax deductions should be kept at least that long.

Here are recommended retention periods for various records:

Record Retention	Period
Cancelled checks	7 years
Credit card receipt	7 years
Paid invoices	7 years
Bank deposit slips	7 years
Bank statements	7 years
Tax returns (uncomplicated)	7 years
Tax returns (all others)	Permanent
Employment tax returns	7 years
Expense records	7 years
Financial statements	Permanent
Contracts	Permanent
Minutes of meetings	Life of company plus 7 years
Corporate stock records	Permanent
Employee records	Period of employment plus 7 years
Depreciation schedules	Life of assets plus 7 years
Real estate records	Ownership period plus 7 years
Journal & general ledger	Life of business plus 7 years
Inventory records	7 years
Home purchase and improvement records	Ownership period plus 7 years
Investment records	Ownership period plus 7 years

Requirements for computer-maintained records are generally the same as for manually kept records.

IRS's audit priority shifts, with "high-income" groups targeted

Under growing pressure from Congress and the general public to do something dramatic about the growing ranks of tax shelters and tax cheats, the IRS has announced a major shift in its audit focus. Starting immediately, and scheduled to be running at full steam by January 2010, the IRS's best agents will be devoting themselves to identifying and rooting out tax abuse in the following "problem" areas:

High-risk, high-income taxpayers;

Abusive schemes and promoter investigations;

Offshore credit card abuse; and

Non-filing by higher-income taxpayers.

High-end abuse

The IRS warns high-income taxpayers-those who have the resources for creating and investing in partnerships, trusts, and other tax liability reduction vehicles-to expect more intrusive examinations. Although one IRS official threw out $100,000-or-more as an income figure as one profile for someone within this new targeted area, realistically the IRS must narrow down this group further by using other "filters." The reality is that, although the IRS has a new focus, it will continue to operate with a limited audit staff that can only examine a small fraction of taxpayers.

One new tool the IRS will use is the "Unreported Income Discriminate Index Formula" (UI DIF), which rates the probability of income being omitted and will allow the IRS to identify many more returns at high-risk for unreported income.

Abusive schemes/offshore accounts

The IRS will take action against abusive transactions' promoters. In addition to combating corporate tax shelter abuse, the IRS will pursue scams targeting individual taxpayers, some of which include:

Frivolous return arguments;

Reparation claims; and

Employment tax schemes.

The IRS also will pay special attention to offshore credit card accounts. The IRS is searching some of America's largest businesses' records to identify consumers who are using credit cards issued by offshore banks. Although the cards themselves are not illegal, the IRS suspects that these cardholders represent billions of dollars of unreported income.

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Don't overlook these tax deductions

Every year, millions of Americans pay higher taxes than necessary because they fail to take legitimate deductions. Don't overlook deductions which can help you minimize your income tax bill. For example:

Write off job-hunting expenses. Job search expenses (such as costs of resume preparation, employment agency fees, and travel to a job interview) may be deductible as a miscellaneous itemized deduction, even if they don't produce a new job. You must be looking for a job in your current field, however, and it can't be your first job.

Tax Tips for Transferring the Family Business Transferring control and ownership from one generation to another is one of the most daunting challenges facing family-owned businesses. In addition to the emotional issues involved, there's the critical need of minimizing the cost of the transfer. Many business owners worry about the estate tax, and whether they'll be able to transfer ownership without raiding the business's cash reserves to pay those hefty taxes.

There are ways to control the tax burden, but you likely will need expert help. Here's a brief overview of some of the options facing a business owner seeking to transfer a business to another family member.

Making taxable gifts.

It may make sense to give away part of the value of your company as a gift, even if the gift is subject to the gift tax. Why?

Even if the gift is in excess of your $13,000-per-person limit, it might not result in a tax in the current tax year. That's because beyond the $13,000-per-person limit, you have a $1 million exemption from current gift taxes on taxable gifts. People don't generally get taxed when they give a taxable gift; the value is just applied against the $1 million exemption amount. If you use up the credit, you then pay a tax just as if it was an inheritance.

So, theoretically, you could make a gift of a business worth $1 million to a relative (or anyone else) without incurring any gift tax. Of course, if you'd made taxable gifts previously, thus reducing the $1 million exemption, you'd be subject to a tax on at least part of the value of the transfer.

Top Ten Reasons Small Business's Fail

Watching a small business die is never easy, if for no other reason than it can happen in so many different ways. And, no matter the cause, it's never funny. Here, in hopes that a bit of foreknowledge may make a dent in the death rate, are the top 10 reasons small businesses fail:

Undercapitalization. Money's not only the root of all evil; it may well be the leading cause of small-business failures. Far too many small-business owners underestimate how much money they're going to need, not merely to get the business up and running, but also to sustain it as it struggles to gain a commercial foothold. Norman Scarborough, an associate professor of business administration at Presbyterian College in South Carolina, says, "Once you start out undercapitalized, that can start a downward spiral from which you can never catch up."
Bad cash flow. This is the macabre cousin to inadequate capital. Even businesses that move past the embryonic stage often collapse when incoming cash doesn't at least offset expenses and other costs. Watch your "burn rate" (a buzzword coined by dot-com firms, which somehow reveled in how much available cash they were torching). As Scarborough puts it: "When it comes down to it, cash is what really counts."
Inadequate planning. Not surprisingly, this is the reason problems like capitalization and bad cash flow happen in the first place. It's critical that you map out as comprehensive a business plan as possible, covering financial issues, marketing, growth and an array of other elements. Granted, it can be time consuming, as a well-prepared plan can take weeks or months to complete. "But that's the time to find out an idea may not work," says Scarborough. "If you don't plan and still go ahead, you may end up with heartache and thousands of dollars down the drain."
A competitive edge. Genuinely unique ideas are as rare as honest CEOs these days, but it's still critical that your business gain a toehold in some sort of singular niche that you can exploit. Be it a slightly different product or customer support that goes beyond your competitors; earmark that one element that sets your business apart. "Too many small businesses are simply 'me too' operations," says Scarborough. "Make sure something is unique or different."
Mushy marketing. Your mother knows you're special, but what about your prospective customers? It's essential to develop a marketing strategy not merely to identify who might buy from you, but why. Make certain your marketing strategy sets you apart so a customer can clearly see why she'd rather go to you than a competitor.
Inadequate flexibility. From stacks of cash to battalions of seasoned employees, every small-business owner knows the advantages a larger competitor brings to the game. Well, one thing he can't necessarily do is turn on a dime, something small businesses can exploit. Never forget to remain flexible. If a product isn't quite right or a marketing campaign isn't really flying, don't be afraid to tinker. Making those sorts of in-course adjustments is much more unwieldy for the big guys.
Ignoring the next step. Be willing to go the extra mile. Make sure you and your people emphasize complete customer support, from doing things you don't have to to offering thoughtful, useful advice that goes beyond the ordinary.
Forgetting there's no red 'S' on your chest. Entrepreneurs are a smart, resourceful bunch, but running a small business carries its share of hidden kryptonite. Don't try to be all things to your business. If you cringe at the thought of maintaining complete books, don't hesitate to hook up with a good bookkeeper. When a legal issue crops up, don't rely on your home-baked juris doctorate to evaluate the legal ramification. Establish a long-term relationship with an attorney; preferably one with small-business acumen.
Great boss, mediocre staff. Make certain your employees are well-trained, fairly compensated and somehow share in the fire that burns in your belly.
Uncontrolled growth. Ironic as it seems, but a small business that simply succeeds too quickly often pushes itself into an early grave. If your production fails to keep pace with demand or necessary expansion coincides with insufficient cash, the growth you dream about as an entrepreneur can actually threaten your business' very existence. Again, cover foreseeable growth in your original plan and track it adequately to make certain that it never gets dangerously out of hand.

How do I obtain back tax returns or account information from the IRS?

A taxpayer who may have misplaced or lost a copy of his tax return that was already filed with the IRS or whose copy may have been destroyed in a fire, flood, or other disaster may need information contained on that return in order to complete his or her return for the current year. In addition, an individual may be required by a governmental agency or other entity, such as a mortgage lender or the Small Business Administration, to supply a copy of his or a related party's tax return.

In such circumstances, you may obtain a copy of your tax return by filing Form 4506, Request for Copy or Transcript of Tax Form, along with the applicable fee, to the IRS Service Center where the return was filed. Also, tax account information based on the return may be obtained free of charge from IRS Taxpayer Service Offices. You may also request a transcript that will show most lines from the original return, including accompanying forms and schedules. Fees

There is no charge to request a tax return transcript of the Form 1040 series filed during the current calendar year and the three preceding calendar years. For other requests, a fee of $23.00 per tax period requested must be paid in order to obtain copies of a return. Taxpayers seeking tax account information (such as adjusted gross income, amount of tax, or amount of refund) should contact their local IRS Taxpayer Service Office, which will provide the account information free of charge.

Timing of requests

A request for a copy of a return must be received by the IRS within 60 days following the date when it was signed and dated by the taxpayer. It may take up to 60 calendar days to get a copy of a tax form or Form W-2 information. If a return has been recently filed, the taxpayer must allow six weeks before requesting a copy of the return or other information. The IRS cautions that returns filed more than six years ago may not be available for making copies; tax account information, however, is generally available for these periods.

You may be able to save some time by going directly to your tax return preparer for the information. Although a return preparer may retain a copy of the taxpayer's return, however, there is no absolute requirement to do so. Preparers must retain for three years either a copy of each completed return and claim for refund or a list of the names and taxpayer identification numbers of taxpayers for whom returns or claims have been prepared.

Tax treatment of costs of starting a new business

As a new business owner, you probably expect to incur many expenses before you even open the doors. What you might not know is how these starting up costs are handled for tax purposes. A little knowledge about how these costs will affect your (or your business') tax return can reduce any unexpected surprises when tax time comes around.

Starting a new business can be an exciting, although expensive, event that finds you, the small business owner, with a constantly open wallet. In most cases, all costs that you incur on behalf of your new company before you open the doors are capital expenses that increase the basis of your business. However, some of these pre-opening expenditures may be amortizable over a period of time if you choose. Pre-opening expenditures that are eligible for amortization will fall into one of two categories: start-up costs or organizational costs.

Start-up Costs

Start-up costs are certain costs associated with creating an active trade or business, investigating the creation or acquisition of an active trade or business, or purchasing an existing trade or business. If, before your business commences, you incur any cost that would normally be deductible as a business expense during the normal course of business, this would qualify as a start-up cost. Examples of typical start-up costs include attorney's fees, pre-opening advertising, fees paid for consultants, and travel costs. However, deductible interest taxes, and R & D expenses are treated differently.

Start-up costs are amortized as a group on the business' tax return (or your own return on Schedule C, if you are a sole proprietor) over a period of no less than 60 months. The amortization period would begin in the month that your business began operations. In order to be able to claim the deduction for amortization related to start-up costs, a statement must be filed with the return for the first tax year you are in business by the due date for that return (plus extensions). However, both early (pre-opening) and late (not more than 6 months) submissions of the statement will be accepted by the IRS.

Organizational Costs

Organizational costs are those costs incurred associated with the organization of a corporation or partnership. If a cost is incurred before the commencement of business that is related to the creation of the entity, is chargeable to a capital account, and could be amortized over the life of the entity (if the entity had a fixed life), it would qualify as an organizational cost. Examples of organizational costs include attorney's fees, state incorporation fees, and accounting fees.

Organizational costs are amortized using the same method as start-up costs (see above), although it is not necessary to use the same amortization period for both. A similar statement must be completed and filed with the company's business tax return for the business' first tax year.

Before you decide which, if any, pre-opening expenditures related to your new business you'd like to treat as start-up or organizational costs, please contact the office for additional guidance

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How long should records be kept?

Tax treatment of costs of starting a new business