Putting Your Home on the Market? Understand the Tax Consequences of a Sale

As the school year draws to a close and the days lengthen, you may be one of the many homeowners who are getting ready to put their home on the market. After all, in many locales, summer is the best time of year to sell a home. But it’s important to think not only about the potential profit (or loss) from a sale, but also about the tax consequences.

Gains

If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.

To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use. Keep in mind that gain that’s allocable to a period of “nonqualified” use generally isn’t excludable.

Losses

A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

Second homes

If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

Learn more

If you’re considering putting your home on the market, please contact us to learn more about the potential tax consequences of a sale.

By investing in qualified small business (QSB) stock, you can diversify your portfolio and enjoy two valuable tax benefits:

1. Tax-free gain rollovers. If within 60 days of selling QSB stock you buy other QSB stock with the proceeds, you can defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

2. Exclusion of gain. Generally, taxpayers selling QSB stock are allowed to exclude up to 50% of their gain if they’ve held the stock for more than five years. But, depending on the acquisition date, the exclusion may be greater: The exclusion is 75% for stock acquired after Feb. 17, 2009, and before Sept. 28, 2010, and 100% for stock acquired on or after Sept. 28, 2010. The acquisition deadline for the 100% gain exclusion had been Dec. 31, 2014, but Congress has made this exclusion permanent.

The taxable portion of any QSB gain will be subject to the lesser of your ordinary-income rate or 28%, rather than the normal long-term gains rate. Thus, if the 28% rate and the 50% exclusion apply, the effective rate on the QSB gain will be 14% (28% × 50%).

Keep in mind that these tax benefits are subject to additional requirements and limits. For example, to be a QSB, a business must be engaged in an active trade or business and must not have assets that exceed $50 million.

Consult us for more details before buying or selling QSB stock. And be sure to consider the nontax factors as well, such as your risk tolerance, time horizon and overall investment goals.

The United Way of Midland County recently recognized Yeo & Yeo among several Companies That Care at its annual Spirit of the Community Awards Celebration at the Great Hall in Midland. The event recognizes the many ways that individuals and organizations are lending their time and talents to create a better and stronger community. This is the seventh consecutive year that Yeo & Yeo won the award.

“Companies That Care are not only characterized by the financial commitment they and their employees make, but their impact through community advocacy and volunteerism,” says Ann Fillmore, executive director of the United Way of Midland County. “They serve as the foundation for real change and continue the strong legacy of compassion for those in need.”

Read more about the award and the United Way’s emphasis on volunteerism.

Mike Zimmerman, Managing Principal of Yeo & Yeo’s Midland accounting firm office says, “We all depend on a strong, vibrant and caring community.” In the video below see several individuals and business come together to share why they lend their time and talents to support their community.

It’s not unusual for the IRS to conduct audits of qualified employee benefit plans, including 401(k)s. Plan sponsors are expected to stay in compliance with numerous, frequently changing federal laws and regulations.

For example, have you identified all employees eligible for your 401(k) plan and given them the opportunity to make deferral elections? Are employee contributions limited to the amounts allowed under tax law for the calendar year? Does your 401(k) plan pass nondiscrimination tests? Traditional 401(k) plans must be regularly tested to ensure that the contributions don’t discriminate in favor of highly compensated employees.

If the IRS uncovers compliance errors and the plan sponsor doesn’t fix them, the plan could be disqualified.

What happens if qualified status is lost?

Tax law and administrative details that may seem trivial or irrelevant may actually be critical to maintaining a plan’s qualified status. If a plan loses its tax-exempt status, each participant is taxed on the value of his or her vested benefits as of the disqualification date. That can result in large (and completely unexpected) tax liabilities for participants.

In addition, contributions and earnings that occur after the disqualification date aren’t tax-free. They must be included in participants’ taxable incomes. The employer’s tax deductions for plan contributions are also at risk. There are also penalties and fees that can be devastating to a business.

Finally, withdrawals made after the disqualification date cannot be rolled over into other tax-favored retirement plans or accounts (such as IRAs).

Voluntary corrections

The good news is that 401(k) plan errors can often be voluntarily corrected. We can help determine if changes should be made to your company’s qualified plan to achieve and maintain compliance. Contact us for more information.

The U.S. Department of Labor (DOL) has issued the “Final Rule” version of its amendments to overtime pay requirements, affecting more than four million workers who may qualify for overtime pay. The new rules will take effect December 1, 2016.

The new rules include changes to the criteria used to define overtime exemption for executive, administrative, professional, outside sales and computer employees (white collar workers) under the Fair Labor Standards Act.

Until now, workers who earned more than $23,660 per year, or $455 per week, were exempt from overtime if they performed managerial or professional duties. Under the final rule, the salary threshold has been increased to $47,476 per year, or $913 per week.

The final rule will not only increase salary costs, particularly in the retail, hospitality and Non-Profit sectors, but employers will now be required to provide systems to keep track of hours worked. Many of these positions have not had to deal with timekeeping policies and records in the past.

Specifics of the Final Rule

The final rule focuses primarily on the salary and compensation levels needed for white collar workers to be exempt. Specifically, the rule:

Sets the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Region (currently the South).
Increases the total annual compensation required to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers, or $134,004 (up from $100,000).
Establishes a mechanism for automatically updating the salary and compensation levels going forward. Future automatic updates to the thresholds will occur every three years, beginning on January 1, 2020.
Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. The amounts must be paid on a quarterly or more frequent basis, but a provision allows a “catch-up” payment to be made during the first pay period of the next quarter.
Does not change any of the existing job duty requirements to qualify for an exemption. Both the standard duties tests and the HCE duties test remain unchanged.

The final rule, which is scheduled to be published in the Federal Register on May 23, is available for preview. Additional information is available on the Department of Labor’s website.

Strategic steps for businesses

Many employers may need to account for a higher payroll or make adjustments to minimum exempt salaries. Several strategies have been suggested for employers to prepare for the implementation of the new requirements, including:

Increase the salary of an employee who meets the duties test to at least $47,476 annually to retain his or her exempt status;
Convert the employee to non-exempt status and pay an overtime premium of one-and-one-half times the employee’s regular rate of pay for any overtime hours worked;
Convert the employee to non-exempt status and reduce or eliminate overtime hours;
Convert the employee to non-exempt status and reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
Implement some combination of the above.

Although the revision does not take effect until December 1, 2016, employers impacted should soon assess their options and integrate the systems needed to comply with Department of Labor’s Final Rule.

If you have questions or need assistance, please contact Yeo & Yeo.

You may have heard about CryptoLocker or Ransomware over the past couple of years. CryptoLocker has continued to infect computers worldwide while baffling leading IT security professionals. A February 2016 article on BBC describes how CryptoLocker held a Los Angeles-based hospital’s information for ransom; its computer systems were offline for more than a week following the ransomware attack.

How does CryptoLocker work?

CryptoLocker seeks out users’ personal files and keeps users from accessing them unless they pay a ransom, typically $300 or $400, which may or may not result in the recovery of the files.

Files that this malware seeks can include photos, music files, documents and videos from both personal and business computers. When CryptoLocker infects a computer, the system will continue to run as it normally would until the user attempts to access the “locked” files.

CryptoLocker is typically delivered through malicious emails that mimic legitimate business emails, hidden inside attachments like .zip or .pdf files and can take several days to take effect once the computer is infected. One major issue is that an effective anti-virus software can remove the malware, but not the encryption.

Preventive Measures:

Do not follow unsolicited web links in email message 100cs or submit any information to webpages in links.
Use caution when opening email attachments.
Keep operating systems and software, including anti-virus, up to date with the latest patches.
Perform regular backups of all systems/data to avoid serious consequences should your system fall under attack.

If you believe your system may be infected with the CryptoLocker Malware, follow these steps:

Immediately disconnect the infected system from the wireless or wired network. This may prevent the malware from further encrypting any more files on the network.
Change your passwords after removing the malware from your system.
Users infected with the malware should consult with a reputable security expert to assist in removing the malware, or users can retrieve encrypted files by restoring from backup, restoring from a shadow copy or by performing a system restore.

If you have questions or would like to discuss IT security solutions for your business, contact Yeo & Yeo Technology at 989.797.4075 or email info@yeoandyeo.com.

Many nonprofit organizations view the Form 990 as a “tax return” – a document that is tedious to complete, and that must be filed with the IRS as one of several requirements to maintain tax-exempt status. However, Form 990 is not really a tax return at all. The core Form 990 and its various sub-schedules are more accurately described as an information return and serve several functions, the most fundamental of which is to serve as a vehicle to transmit information regarding the organization’s activities to the IRS. However, another function of the Form 990 is to paint a picture of the organization that can serve as an invaluable tool to influence public perception, raise awareness for issues important to the organization, and attract new donors.

The Form 990 return is available to the public via guidestar.org and other websites. Private foundations, businesses, and wealthy individuals may review your return (and possibly request the audited financial statements) to make a decision on whether to provide grant funding. Additionally, average citizens may obtain it to decide if they want to volunteer for the organization. In order to make the organization look as attractive as possible and inform the public about all the great things it has accomplished, you should review the return and customize it to include broad concepts such as the mission, long-term plan, and program outcomes. Additionally, the return should include items specific to the most recent fiscal year, such as number of people served, number of volunteers utilized, collaborations with other nonprofit organizations, and projects that were completed.

Create a glowing picture by focusing on these sections

Most of the return is rather standard and doesn’t leave much room for reporting anything other than a number or a ‘yes’ or ‘no’ response. However, you should definitely spend time highlighting the organization in a few key sections:

Schedule O – Supplemental Information to Form 990: This schedule is important since this is where you can elaborate on any other part of the core Form 990, and is one of the only places where the response is not limited to a few lines of text. Schedule O can continue for as many pages as desired and contain elaborate narratives that highlight a wealth of information about the organization.
Part I, Line 1 – Summary of Mission or Most Significant Activities: This is especially important since this is the first page of the return and the first significant piece of information people will see. Only about two lines of text fit in this space, so you may want to simply state, “See Part III and Schedule O,” if you want to convey more information than can be accommodated in this space.
Part I, Line 6 – Total Number of Volunteers: Most organizations simply estimate the number of volunteers and list them in this box, which doesn’t particularly attract attention or tell much of a story. Organizations that have a volunteer program would benefit by expanding on this information in Schedule O and including the number of volunteer hours that were donated, the types of services provided, and the effect of those volunteer hours on the organization.

The more volunteers an organization has, the more important this section becomes. Since donated services must meet certain criteria in order to be recorded on the financial statements, and are not reported on the statement of functional expenses or in the program expense totals in Part III – Program Service Accomplishments, the volunteer services would otherwise go unnoticed. By highlighting the details of the volunteer program, you can illustrate all of the accomplishments that would not be possible without their time and effort at no cost to the organization, and fully illustrate and measure the reach of the organization’s programs. It also shows donors the additional effect every dollar they donate has on the organization’s clients and the community, since the magnitude of a program is not measured solely by the amount of actual dollars spent on it.

Part III – Statement of Program Service Accomplishments: This page is the most important section of the return for “tooting your organization’s horn.” Line 1 should state the organization’s mission, as adopted by the board of directors. Line 4a-4c lists the three largest program services (measured by amount of expenses). There is ample room to describe each program in detail and any program can be explained further in Schedule O. Line 4d can also refer to Schedule O to describe the other programs that are not within the top three already described above. This section is the best opportunity to show the public what the organization accomplished during the past year and why they should donate their time and resources to the organization.
Part IX – Statement of Functional Expenses: This statement reflects how much of the expenses were spent for direct program activities, and for supporting services including management and general activities, and fundraising. Potential donors will use this statement to see how many cents out of every dollar would potentially be spent on administrative costs. Organizations that spend relatively large proportions of their expenses on administrative costs could be viewed in a negative light when compared to other organizations that spend significantly less.

Without a doubt, fundraising is a huge priority for all nonprofit organizations. With all the time and effort spent on soliciting new donors, marketing, and grant writing, any nonprofit organization would be remiss if it did not ensure that the Form 990 paints an enticing picture of the organization. This year, as you prepare or review this important information return, ask yourself: What does my picture look like?

Starting a new business is an exciting time. But before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away.

How expenses are handled on your tax return

When planning a new enterprise, remember these key points:

Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one. Organizational costs include the costs of creating a corporation or partnership.
Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs. The $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts will generally ask: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

An important decision

Time may be of the essence if you have start-up expenses that you’d like to deduct this year. You need to decide whether to take the elections described above. Recordkeeping is important. Contact us about your business start-up plans. We can help with the tax and other aspects of your new venture.

Now that the April 18 income tax filing deadline has passed, it may be tempting to set aside any thought of taxes until year end is approaching. But don’t succumb. For maximum tax savings, now is the time to start tax planning for 2016.

More opportunities

A tremendous number of variables affect your overall tax liability for the year. Starting to look at these variables early in the year can give you more opportunities to reduce your 2016 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

More certainty

In recent years, planning early has been a challenge because there were a lot of expired tax breaks where it was uncertain whether they’d be extended for the year. But the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks through 2016, or, in some cases, later. It also made many breaks permanent.

For example, the PATH Act made permanent the deduction for state and local sales taxes in lieu of state and local income taxes and tax-free IRA distributions to charities for account holders age 70½ or older. So you don’t have to wait and see whether these breaks will be available for the year like you did in 2014 and 2015.

Getting started

To get started on your 2016 tax planning, contact us. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.

Many people itemize deductions on Schedule A of their tax returns, rather than taking the standard deduction. Your tax preparer will generally advise you to do so if your allowable itemized deductions exceed the standard deduction.

Most itemized deductions are well known and fairly well-understood. Examples include property taxes, home mortgage interest, state and local income taxes, charitable donations and medical expenses.

But you can also write off miscellaneous itemized deductions. These are less well known and not always understood, so you may be missing out. Here’s what you need to know to keep that from happening.

Deduction Basics

Miscellaneous itemized deductions fit into two categories.

1. Items that, when added together, can be deducted only to the extent they exceed 2% of your adjusted gross income (AGI). AGI is the number on the last line of page 1 of your Form 1040. It includes all taxable income items and selected write-offs such as the ones for deductible IRA contributions, moving expenses and alimony paid.

2. Items that are not subject to the 2%-of-AGI deduction threshold.

Phase-Out Rules Disallow Deductions for Some

Items in both categories are subject to the itemized deduction phase out rule that applies to high-income individuals. Under this rule, you can lose up to 80% of affected deductions. For 2016, the phase out rule kicks in when AGI exceeds:

$259,400 for singles (unchanged from 2015),
$311,300 for married joint-filing couples (unchanged from 2015),
$285,350 for heads of households (unchanged from 2015), and
$155,650 for married individuals who file separate returns (unchanged from 2015).

Under the phase out rule, the total amount of affected itemized deductions is reduced by 3% of the amount by which AGI exceeds the applicable threshold. But the reduction cannot exceed 80% of the otherwise allowable deductions that you started off with.

Key point: Most taxpayers aren’t troubled by the itemized deduction phase out rule. Even when applicable, it doesn’t make a big difference unless you have a really high income.

Items in both categories are completely disallowed under the alternative minimum tax (AMT) rules. So if you’re liable for AMT for the year, you can forget about any write-offs for miscellaneous itemized deduction items.

What’s Subject to the 2%-of-AGI Threshold

The 2%-of-AGI deduction threshold applies to the following miscellaneous itemized deduction items:

Job-related expenses. These include job-search costs, though you can deduct costs to search for a new job only in your existing occupation or profession. Unreimbursed employee business expenses also fall in this category. These include:

Professional association dues,
Subscriptions to professional publications, mobile devices used primarily for business,
Small tools and supplies,
Safety equipment,
Protective clothing and uniforms (if not suitable for ordinary wear), and
Physical exams required by your employer.

In addition, you can throw in expenses of having an office in your home if it’s maintained for your employer’s convenience.

Tax preparation expenses. These include preparation fees you pay your tax adviser.

Other expenses. These items include:

Expenses incurred for the production or collection of income (such as the cost of legal actions to collect damages, unpaid insurance claims, wages, investment income, alimony and so forth),
Expenses for the management, conservation and maintenance of taxable-income-producing assets (such as office expenses, clerical help, accounting and legal fees, investment advisory fees, custodial fees, trust administration fees, and the rental of a safe deposit box used to store investment-related documents),
Expenses for tax advice (including in divorce situations) and any expenses related to the determination, collection or refund of any tax including federal income tax (including legal and tax professional fees),
Hobby expenses (but only to the extent of income from the hobby activity), and
Legal expenses related to doing or keeping your job, such as fees paid to defend yourself against criminal charges arising from employment.

What’s Not Subject to the 2%-of-AGI Threshold

You can write off the following miscellaneous expenses without having to worry about the 2%-of-AGI deduction threshold:

Gambling losses for the year (but only to the extent of your gambling winnings for the year),
Bond premium amortization for taxable bonds,
Casualty and theft losses of income-producing assets (such as stolen or destroyed securities and losses from Ponzi investment scams), and
Federal estate tax paid on income-in-respect-of-a-decedent.

Referred to in that last point is income that a deceased person would have collected if he or she continued to live but that wasn’t properly included in taxable gross income on the decedent’s final Form 1040. Such not-yet-taxed income counts as an asset of the decedent’s estate for federal estate tax purposes and can result in an additional estate tax hit. If you inherited an income-in-respect-of-a-decedent item, the miscellaneous deduction for the applicable estate tax could apply to you.

Only the Beginning

Believe it or not, this is only the beginning of many tax-saving miscellaneous itemized deductions worth considering. This article doesn’t cover them all. Ask your tax adviser whether you have other expenses that might qualify.

Yeo & Yeo, a leading Michigan accounting firm, and its affiliates, Yeo & Yeo Technology, Affiliated Medical Billing and Yeo & Yeo Financial Services, have launched a firm-wide initiative to benefit the Red Nose Day Fund. Red Nose Day is a FUN-raising campaign benefitting nonprofit organizations that help lift children and young people out of poverty in the United States and in some of the poorest communities in the world.

Red Nose Day encourages people to don red noses and have a laugh for a good cause. Half of the money donated to the Red Nose Fund will be spent in the U.S. The other half will be spent in some of the poorest communities in Latin America, Asia and Africa. All money raised supports projects that ensure kids are safe, healthy and educated.

“Just the simple, silly act of putting on a red nose means that anyone can benefit children in poverty,” says Thomas E. Hollerback, president & CEO. “In staying true to our values―which include continuing dedication to community service―we are pleased to participate in this fun campaign to support children both locally and globally.”

Yeo & Yeo will raise money for the Red Nose Fund through a $5 donation jeans day for its 220 professionals on the official Red Nose Day, May 26. The firm will also encourage its employees to wear their red noses in the community to raise awareness for the campaign and to take silly selfies throughout the month. The firm will contribute $1 to the Red Nose Fund for every photo submitted by its employees.

Locally, Yeo & Yeo CPAs’ Young Professionals group of the Leading Edge Alliance (LEA YP) are taking the firm-wide initiative a step further by incorporating it with the LEA’s annual Global Volunteer initiative. LEA member firms worldwide are encouraged to donate to or volunteer for a local charity.

“Each year we seek opportunities in our communities that will help those in need for LEA’s Global Volunteer Week,” says Brad Booms, LEA YP Group Leader. “Directing efforts to our local Boys & Girls Clubs of America, charity partners of the Red Nose Fund, is a perfect fit because they can be found in many of our Yeo & Yeo communities.”

The firm’s young professionals will collect playground equipment, games and activities for Boys and Girls Clubs located in the communities that Yeo & Yeo serves, as well as volunteer at the Boys and Girls Clubs throughout May.

The Red Nose Day Fund’s month-long campaign will culminate in NBC’s televised fundraising event on Thursday, May 26, at 9:00 p.m. EST. The live two-hour benefit will feature popular comedians, top musicians and Hollywood stars, along with a mix of great comedy, live musical performances and short, compelling films shedding light on the cause.

Early in the history of the Health Insurance Portability and Accountability Act (HIPAA), violations typically involved receiving a warning letter from the Department of Health and Human Services (HHS). It was basically toothless and carried no penalties. In 2009, Congress passed the Health Information Technology for Economic and Clinical Health Act (HITECH), which supplied the government with a range of tools to support enforcement. In short, HIPAA grew fangs.

In 2010, HHS began holding training seminars for state attorneys general on enforcing HIPAA rules. As a result, that year alone saw an increase of 27 percent in the number of HIPAA-related complaint investigations.

Part of what the HITECH Act added to HIPAA was to replace warning letters with mandatory fines for HIPAA violations. The toughest category, “willful neglect,” could carry penalties up to $1.5 million for violations like unsecured protected health information (PHI).

A more typical fine at the physician’s office level are first-tier violations that start at $100. A second-tier violation is the most common for physicians. These fines start at $1,000 per violation and can go as high as $25,000 per violation, which can be levied for multiple infractions.

HIPAA Audits

Prior to 2012, these were referred to as HIPAA investigations, but are now called HIPAA audits. Random audits may be conducted, although the number of physicians in the U.S. compared to the number of auditors makes the odds of being chosen for an audit fairly low.

There are three types of breaches that may result in a HIPAA audit.

1. Breach or a complaint of a breach. Any breach of protected health information that affects more than 500 people must be published on the HHS website. This can be found at: http://www.hhs.gov/ocr/privacy/hipaa/administrative/breachnotificationrule/breachtool.html

2. A complaint of a security or privacy violation. HHS is required by law to investigate all HIPAA violation complaints. Directions for how to file a complaint can be found on the HHS website at: http://www.hhs.gov/ocr/privacy/hipaa/complaints/index.html

3.Filing for Electronic Health Record (EHR) reimbursements. The 2009 American Recovery and Reinvestment Act (ARRA) provided financial incentives for physicians able to demonstrate “meaningful use” of an electronic health record system. Those incentives were as high as $44,000 prior to April 2011, but have decreased yearly until 2016 when they will disappear completely. In order to qualify for the reimbursement, physicians need to describe how their medical practice meets HIPAA compliance requirements. In addition, the EHR must be HIPAA compliant, as well as all the physician’s policies and procedure manuals. Staff in the physician’s office must have documented training in HIPAA.

Audits and Documentation

If audited, physicians must provide documentation of their HIPAA compliance practices. Some of the items examined are:

Prevention, detection, containment and correction of security violations;
List of software used to manage and control access to the Internet;
Policies and procedures for emergency access to electronic information systems; and
Password management policies and procedures.

The list is so long and comprehensive it might seem impossible for anyone to comply. However, most physician professional organizations can supply privacy and security manual templates. Usually a member of the physician’s staff will need to become the privacy/security officer whose job it is to implement and maintain HIPAA compliance records and policies.

When purchasing an EHR system, make sure the product is HIPAA compliant and the vendor is fully aware of HIPAA regulations. The same goes for hiring a HIPAA consultant. Check the consultant’s background and determine his or her specialty (for example, are they focused primarily on accounting or law firms or physician’s offices?).

Audits and Personnel

During an audit, HIPAA auditors will request that key personnel be available for questions. This will include the physician, the practice’s IT person and the HIPAA compliance officer. HHS’s Office of E-Health Standards and Services provides a lengthy list of job titles of people who could be called in during an audit. Click here to read it. It’s worthwhile to keep in mind that many of those titles only exist in large healthcare institutions, like Lead Network Engineer. They would not be expected in a physician’s office.

Questions Likely to Be Asked

The specific questions a HIPAA auditor is likely to ask will vary according to the nature of the audit and type of security breach, as well as the type and size of the organization. Typical questions include:

Are you able to provide a list of software used to manage and control access to the Internet?
Do you have an emergency mode of operations plan?
Show us a list of terminated employees.
Provide a list of antivirus software, service, date of installation and list of updates.
Can you provide a list of users who can access your system remotely?
What is your employee violations/sanctions policy?
Show us a list of systems administrators, backup operators and computer system users.
Show us how your system authenticates users’ access to electronic protected health information (EPHI).
Do you have a disaster recovery plan?

Good Medicine

Although it sometimes seems that HIPAA and the HITECH Act have added yet another layer of bureaucracy to practicing medicine, it’s important to remind yourself that the purpose of both laws is to protect a patient’s confidential health information. In addition, since so much of a patient’s financial information flows through a physician’s office, the regulations cover that as well.

For the most part, HIPAA security regulations are built upon computer security best practices and once in place, are reasonably easy to follow. Yet it seems every week there’s a news story about a major breach at a healthcare institution, doctor’s office or healthcare agency.

Implementing good patient information security practices can save you, your practice and your patients a lot of headaches and potential financial penalties. Plus, it’s just good medicine.

In recent months, there have been several significant tax developments that affect partnerships. They also apply to multi-member limited liability companies (LLCs) that are treated as partnerships for federal tax purposes. (For simplicity, we’ll use the terms “partnership” and “partner” to refer to all entities and owners that are affected by the developments.)

Here are quick summaries of what’s brewing on the partnership tax front.

Accelerated Due Dates

The long-standing due dates for filing partnership federal income tax returns (Form 1065) were changed by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.

For partnership tax years beginning after December 31, 2015, partnerships must file Form 1065 one month earlier than before. That means they’re due two and one-half months after the close of the partnership’s tax year — or March 15 for calendar-year partnerships. As before, six-month extensions are allowed. The deadline is adjusted for weekends and holidays until the next business day.

Under prior law, a partnership’s Form 1065 was due three and one-half months after the close of the partnership’s tax year — or April 15, adjusted for weekends and holidays, for calendar-year partnerships.

Important note. This change affects the due date for 2016 Forms 1065 for partnerships that use the calendar year for tax purposes. Those returns will now be due on March 15, 2017.

Changes to Varying Interest Rules

In August 2015, the IRS issued new final regulations that modify and finalize the so-called “varying interest rules.” These rules were previously contained in proposed regulations issued in 2009.

The varying interest rules are used to determine partners’ percentage interests in partnership tax items — including income, gains, losses, deductions and credits — when the partners’ interests change during the year. For example, interests can change due to the entrance of new partners or the exit of existing ones.

The new final regulations require that 100% of all partnership tax items be allocated among the partners. In addition, no items can be duplicated, regardless of the allocation method adopted by the partnership.

The new final regulations allow partnerships to use either of these two methods to determine distributive shares of partnership tax items when partners’ interests vary during the year:

Interim-closing-of-the-books method. Here, a snapshot of the partnership’s income statement from the beginning of the tax year through the date of the ownership change is used to allocate tax items up to that point of the partnership’s tax year.
Annual proration method. Alternately, partnership tax items for the year can be prorated based on the number of days that an entering or exiting partner is a member of the partnership.

Different methods can be used for different variations that occur within the same tax year. The new final regs are effective for partnership tax years that begin on or after August 3, 2015. For calendar-year partnerships, these changes will be effective for the 2016 tax year.

Partnership Audits

The Bipartisan Budget Act of 2015, which was passed in November 2015, changes how the IRS will audit partnerships. However, the new partnership audit rules generally won’t take effect until partnership tax years beginning in 2018. Until then, the current partnership audit rules will remain in effect unless the partnership voluntarily chooses to follow the new rules sooner.

Family Partnerships

The Bipartisan Budget Act also includes some important new tax provisions for family partnerships. For tax purposes, a family partnership is one that’s composed of members of the same family.

For many years, some taxpayers and tax professionals had argued that the existing family partnership rules provided an alternative test for determining who’s a partner in a partnership, without regard to how the terms “partner” or “partnership” are defined under the general partnership tax rules found in the Internal Revenue Code.

As a result, many partnerships have taken the position that if a person holds a capital interest in a partnership that was acquired as a gift, the partnership’s existence must be respected for tax purposes. They took this position regardless of whether the parties had demonstrated that they actually joined together to conduct a business or investment venture.

The new law attempts to eliminate this argument by making several statutory amendments. First, it clarifies that Congress did not intend for the family partnership rules to provide an alternative test for determining whether a person is a partner in a partnership.

Instead, the new law clarifies that the general partnership tax rules regarding who should be recognized as a partner for tax purposes apply equally to interests in partnership capital that are created by gift. Put another way, the determination of whether the owner of a capital interest that was acquired as a gift is a bona fide partner for tax purposes would be made under the generally applicable partnership tax rules.

Additionally, the new law removes statutory language that implied that the owner of an interest in partnership capital could always be treated as a partner if capital was a material income-producing factor for the partnership.

These amendments take effect starting with tax years beginning after December 31, 2015. So, for calendar-year family partnerships, 2016 federal tax returns could be affected.

Disguised Partnership Payments for Services

In July 2015, the IRS issued new proposed regulations that would treat certain arrangements that result in payments to partners as disguised payments for services, rather than as an allocation of partnership profits and a related distribution of cash.

The proposed regulations are mainly aimed at changing the tax treatment of so-called “fee waiver arrangements,” under which partnership service providers give up their right to receive current fees in exchange for an interest in future partnership profits. Such arrangements are common in the private-equity and hedge-fund industries.

Private-equity firms and hedge funds are often classified as partnerships for tax purposes. And they typically charge investors a 2% fee on managed assets. In many cases, such arrangements are accompanied by a fee waiver arrangement in which the private-equity or hedge-fund manager exchanges all or a portion of its not-yet-earned management fee for an interest in the fund’s future profits.

The tax planning objective of such arrangements is to allow the manager to trade current fee income — which would be treated as high-taxed ordinary income and be subject to federal employment taxes — for an interest in future capital gains collected by the fund. These future capital gains would be taxed at lower rates.

The proposed regulations would use a facts-and-circumstances approach to determine if such an arrangement should be treated as a disguised payment for services, rather than as a distribution of partnership profits. The proposed regulations list six non-exclusive factors that may indicate that an arrangement constitutes in whole or in part a disguised payment for services. These proposed rule changes would become effective when and if they’re issued in the form of final regulations.

Navigating the Rules

The tax rules for partnerships and multi-member LLCs are complicated. And they change frequently due to new tax legislation and new or updated IRS guidance. This article summarizes some key partnership taxation developments that have occurred in recent months. Consult your tax adviser if you have questions or want additional information.

Some lucrative federal income tax credits for certain energy-efficient home improvements were extended recently. The extensions were part of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), which became law on December 18, 2015. Here’s what you need to know to cash in on these tax breaks.

Credit for Energy-Efficient Home Improvements and Equipment

In recent years, individuals could claim a tax credit of up to $500 for qualified energy-saving improvements made to a principal residence in the United States. This credit expired at the end of 2014, but the PATH Act extended it for 2015 and 2016.

The credit equals 10% of certain qualified expenditures plus 100% of certain other qualified expenditures, subject to a maximum overall credit of $500. There are no income restrictions on taking this credit, and it can be used against the alternative minimum tax (AMT). Expenditures for vacation homes and foreign residences are ineligible, however.

For the following improvements to a U.S. principal residence, the maximum credit equals 10% of qualified expenditures up to the overall $500 credit cap, reduced by any credits claimed in earlier years:

Insulation systems that reduce heat loss or gain,
Metal and asphalt roofs with heat-reduction components that meet Energy Star requirements, and
Exterior windows (including skylights) and doors that meet Energy Star requirements. These expenditures are subject to a separate $200 credit cap.

For the following items of energy-saving equipment installed in a U.S. principal residence, the maximum credit equals 100% of qualified expenditures up to the overall $500 credit cap, again reduced by any credits claimed in earlier years:

Qualified central air conditioners; electric heat pumps; electric heat pump water heaters; water heaters that run on natural gas, propane, or oil; and biomass fuel stoves used for heating or hot water. These items are subject to a separate $300 credit cap.

Qualified furnaces and hot water boilers that run on natural gas, propane, or oil. These items are subject to a separate $150 credit cap.

Qualified main air circulating fans used in natural gas, propane and oil furnaces. These items are subject to a separate $50 credit cap.

This credit will expire again at the end of this year, unless Congress extends it again.

Important note. Because the $500 credit cap is reduced by any credits claimed in earlier years, many people who previously claimed the credit will be ineligible for any further credits in 2015 and 2016.

Credit for Residential Solar Electricity-Generating and Water-Heating Equipment

Individual taxpayers can collect a generous federal income tax credit for expenditures for qualifying solar electricity-generating and water-heating equipment. This credit was scheduled to expire at the end of 2016, but it’s been extended to cover qualifying expenditures made through 2021.

For property placed in service by the end of 2019, the credit equals 30% of qualifying expenditures. For property placed in service in 2020 and 2021, the credit rate is scheduled to be reduced to 26% and 22%, respectively.

Important note. Because qualifying systems are expensive, this credit can be significant. There are no upper limits on the credit or phaseout rules for people with higher income levels. In addition, the credit is allowed against the AMT. If your credit is so large that you can’t use all of it on your current-year return, you can carry forward any unused credit to future tax years.

In general, 30% of the costs for the following types of equipment count as eligible expenditures for the credit:

Qualified solar water-heating equipment,
Qualified solar electricity-generating equipment,
Qualified wind energy equipment, and
Qualified geothermal heat pump equipment.

Qualified equipment must be installed and used in a U.S. residence, which can be a vacation home.

You can also take the credit for qualified fuel cell electricity-generating equipment for a U.S. principal residence. Vacation homes are ineligible for the fuel cell credit. Also, the maximum annual fuel cell credit is limited to $500 for each 0.5 kilowatt hour of fuel cell capacity added during that year.

This credit can’t, however, be claimed for equipment used to heat swimming pools or hot tubs. Special rules apply to expenditures for residential co-op and condominium buildings.

Important note. Keep receipts, contracts and other documentation to prove exactly how much you spend on eligible costs, including any extra labor costs for site preparation, assembly, installation, piping or wiring.

Both Credits Require Manufacturer Certifications

To claim either of these residential energy credits, you must obtain a certification from the manufacturer that the product qualifies. The certification may be on the product packaging or the manufacturer’s website. Keep this certification with your tax records. You don’t need to attach it to your return, but the return must include a completed Form 5695, “Residential Energy Credits.”

For more information about these “green” tax breaks, contact your tax adviser.

With the prevalence of automated bill payment, many busy consumers don’t bother to review their monthly bank or credit card statements anymore. Or they may review only those charges above a certain dollar threshold. But a recent indictment by the Federal Trade Commission highlights how important it is to review every line item on your statements, even the small ones.

In March, a Nevada grand jury indicted a British man living in Las Vegas, Nevada, on 39 counts of wire fraud, aggravated identity theft and money laundering for withdrawing money from victims’ bank accounts without authorization. He used the ill-gotten gains to purchase five airplanes, a Land Rover, a Dodge Charger, multiple tractors, five all-terrain vehicles and even a fire truck.

Here’s how this scam allegedly worked. According to the indictment, from 2008 through 2013, the fraudster operated a third-party payment processing company that specialized in creating remotely created checks (RCCs). Also known as demand drafts, RCCs are checks created by third-party payees, rather than the account holders. In place of a signature, an RCC contains a typed statement claiming that the check was authorized by the account holder. On behalf of its merchant clients, the company created and deposited RCCs drawn on the consumers’ bank accounts.

These legitimate transactions provided access to thousands of accounts. To gain access to additional accounts, the perpetrator purchased “lead lists” that contained detailed personal and financial data of thousands more consumers.

In 2013, he established a phony online business that purported to help consumers find online payday loans. Then he allegedly used the payday loan company to create and deposit more than 750,000 RCCs totaling more than $22 million. Most of the victims never visited the phony payday loan company’s website. Instead, the fraudster made unauthorized charges using the personal data obtained from the payment processing company and lead lists.

About half of the fraudulent RCCs were returned by the account holders’ banks — often because the consumer noticed an unauthorized charge for $30 on his or her bank statement and disputed it. But the victims never noticed the charges and, therefore, didn’t dispute them. When the perpetrator ran out of new accounts to charge, he repeated the scam against accounts he had already charged.

The bottom line? Take a couple of minutes to review your bank and credit card statements every month. If you’ve gone “paperless” but you’re not the type of person who will remember to log in to check your account online, contact your bank or credit card company and request to receive old-fashioned paper copies again.

Yeo & Yeo CPAs & Business Consultants, a leading Michigan accounting firm, announces plans to move its corporate headquarters. The move will include relocation of affiliates Yeo & Yeo Technology, Affiliated Medical Billing and Yeo & Yeo Financial Services.

The accounting firm and its affiliates will move from 3023 Davenport Avenue in Saginaw and relocate four miles north to 5300 Bay Road, the site of Davenport University’s former Saginaw campus. Recently, Davenport University merged the Saginaw campus into the Midland campus as part of its long-term strategic plan.

“The building is in immaculate condition,” said Thomas Hollerback, president and CEO. “It’s apparent that Davenport University took pride in maintaining the property, and that was a factor in the decision. For over 40 years, we set high standards for maintaining our current buildings and grounds, for both the community and our employees. We will make every effort to ensure that a future buyer shares the same value,” Hollerback says.

The firm’s growth prompted the move. “We are simply out of space at our current location that we have called home since 1975,” says Hollerback.

Yeo & Yeo’s current location includes two buildings and basement, comprises 30,000 square feet occupied by over 120 employees. “At peak times of the year we are short 14 parking spaces. The First Church of the Nazarene located across Davenport Avenue has been a great neighbor and allowed us to park there as needed,” says Hollerback.

Expansion has been ongoing for Yeo & Yeo. In 2000, the firm invested in an 11,000-square-foot addition to accommodate growth. In 2006, Yeo & Yeo CPAs purchased the 4,500-square-foot building next door at 3037 Davenport which Affiliated Medical Billing moved into. For over a year the firm’s principals have been assessing options for expanding the current location to accommodate the need for workspace and parking, while ideally bringing the affiliates together under one roof. “We determined that relocation will meet our long-term needs and be more cost-effective than expanding our current site,” states Hollerback.

The building at 5300 Bay Road boasts 28,000 square feet and the firm plans to add another 12,000 square feet to fulfil the firm’s strategic plan for future growth. “The extra space will give us all the ability to add staff so that we can continue to provide our clients with outstanding service,” says Saginaw managing principal, David Schaeffer.

The expansion and remodeling are expected to be complete in early 2017. “The new location will provide a fresh, new work atmosphere with enhanced operational efficiencies and excellent growth potential,”says Hollerback.

Yeo & Yeo employs nearly 220 professionals and has nine offices throughout Michigan. During the last three years, Yeo & Yeo’s Ann Arbor accounting firm and Lansing accounting firm offices also relocated within their communities to accommodate growth and offer a contemporary work environment for employees.

The major U.S. card companies — including Visa, MasterCard, Discover and American Express — voluntarily imposed a shift of liability for counterfeit “card present” transactions that went into effect for most merchants on October 1, 2015. (Gas stations with automated fuel dispensers have until October 1, 2017, before their liability on counterfeit cards will shift.)

As a result of this liability shift, brick-and-mortar stores are expected to upgrade their card readers and processing systems to accept chip cards, also known as Europay, MasterCard and Visa (EMV) cards. If a store fails to upgrade and accepts an in-store payment with a chip card using a magnetic-only card reader, the store — not the card issuer — is generally responsible for replacing any fraud losses.

CardHub, a credit card comparison website, recently followed up on the status of EMV compliance in the United States with its “2016 EMV Adoption Survey.” It revealed that 42% of U.S. retailers still haven’t upgraded the terminals in any of their stores. What’s more, the adoption rate is no better for merchants who’ve been hacked in the past. The study found that, among U.S. retailers who’ve experienced a data breach in the last five years, 43% haven’t upgraded their card readers.

Although upgrading may be costly, especially for small banks and retailers, EMV technology provides greater protection for card issuers, merchants and consumers. By using a card without a chip or shopping at stores that aren’t EMV-compliant, you’re putting your accounts at greater risk of fraud. Here’s why.

Magnetic Strips vs. Chips

How do chip cards help fight payment card fraud? A chip card contains a tiny metallic square that’s actually a minicomputer. Chip cards generate a unique encrypted code for each transaction, so they’re more secure than magnetic cards when read by an EMV-compliant processing device. For now, most U.S. chip cards call for dual authorization with card holder signatures, unless the card previously required a personal identification number (PIN). Eventually, the United States may transition to chip-and-PIN cards, which would add a layer of fraud protection.

Conversely, magnetic cards store static information, similar to old-fashioned music cassette tapes, making them easy targets for hackers. If a thief steals data from a magnetic credit card, he or she can copy the unchanging data onto a cloned card and use it to make purchases or withdraw cash.

Card issuers in Canada and several European, Asian and Latin American countries have already seen payment card fraud rates drop significantly after they switched from magnetic cards to chip cards. In addition, most foreign chip card readers already require PINs.

Affected Transactions

In the past, card issuers — including banks, credit unions and other financial institutions that issue debit or credit cards — generally accepted all liability for counterfeit payment card transactions. But on October 1, 2015, the liability for counterfeit in-store payment card transactions generally shifted to the party (either the issuer or merchant) that doesn’t support EMV.

The liability shift doesn’t change the responsibility for online purchases, in-store transactions conducted using lost or stolen cards, or in-store transactions conducted using cards that only offer magnetic strips. Payment card issuers will continue to be liable for payment fraud that occurs with these types of transactions.

Consumer Perceptions of Chip Cards

Many consumers remain indifferent or uncertain about the benefits that chip cards offer. CardHub’s survey revealed that:

- 41% of consumers haven’t received (or don’t know if they’ve received) a chip-enabled card, and

56% of consumers don’t care if a merchant’s equipment is chip-enabled.

It’s easy to tell if you’re using EMV technology. Chip cards have a tiny metallic square on the front. Most chip cards will also have a magnetic strip on the back, at least for now. These may be used if the merchant’s card reader isn’t chip-enabled or the chip reader (or card) malfunctions.

You know a store has installed chip-enabled terminals if the checkout clerk asks you to “dip” your card into the bottom of the reader, rather than “swipe” the magnetic strip. You also might notice that chip card payments take about 10 seconds longer to process than magnetic strip card payments. This gives the chip card’s minicomputer time to communicate with the merchant’s terminal.

Protect Your Accounts

Although consumers aren’t directly affected by this shift of liability, they’ll benefit from more secure credit and debit cards. Criminals steal billions of dollars through payment card fraud each year. When fraud strikes, it’s a huge inconvenience to cardholders.

Victims might, for example, need to dispute fraudulent charges on their monthly card statements, cancel their existing cards and wait for new cards to arrive. They should also switch all automated bill payments and online shopping accounts to the new card numbers and expiration dates.

Fortunately, chip card technology can help reduce your chances of becoming the next payment card fraud victim. But you only get the added layer of protection if you use chip cards and shop at stores that have updated their equipment and processing systems. Contact your financial or legal advisors for more information.

When a deal is pending, the best negotiators know that the goal isn’t to scoop up everything and leave the other side with little or nothing. The real goal is generally to exchange items of value so that both sides leave satisfied they have protected their basic interests and made a deal that benefits their companies.

Like all worthwhile endeavors, success depends on preparation. You must know what to concede, when to compromise, and how to handle concessions. Here are a dozen steps to help you achieve success at the negotiating table:

1. Define what a win looks like to you. For a transaction to make sense for your company, you obviously need certain terms to be met. Before the meeting, do some homework to figure out at what point the deal stops making sense. For example, you might want a price of $55,000 and three days to deliver the product. But after crunching the numbers, you find that the lowest terms you can agree to without losing money are $50,000 and two-day delivery.
2. Establish ground rules. In many cases, it’s a good idea to set some ground rules about the negotiation process, especially if there is a culture or language barrier, or you think the other person may be less than honest.
3. Determine value. Think in terms of basic interests on both sides. Decide ahead of time what is of value to you and what you can afford to give up. Try to determine the same thing on the other side. For example, you go into a sales meeting and find the other party can use some of your company’s stock that you consider obsolete (and which you are paying to insure and store). Offering it at a deep discount could further their interests and in the long run, save you money by getting it out of your inventory.
4. Hold back. Don’t make the first move. You don’t know what the other party’s aspirations are and you may give away far more than you need to. And when the other party requests a concession, don’t agree immediately. That could give the appearance that you were asking too much, you know it, and you aren’t prepared to defend it.
5. Make small concessions. You can establish that your first offer is valid by keeping concessions small. That also suggests there is little wiggle room. Plus, if you make a big concession, the other party may conclude you were trying to take advantage of him or her from the start.
6. Don’t give up something without getting something. The key to effective negotiations is to build trust and communication with an above board give-and-take process. When the other party requests a concession, respond with: “What will you offer in return?” or “will you do this for me?” Don’t give a concession without getting one. Ask for something of equal or greater value. One-sided concessions encourage the other party to keep asking for more.
7. Remember, small concessions add up. Beware of incrementalism. In other words, you may make a bunch of small concessions, but you later realize that you’ve given away a great deal.
8. Give reasons for making concessions. Explain that, in light of the new information provided, you are willing to give up X in exchange for Y. Example: “Your components are more expensive than our current supplier, but since you’ve offered free local delivery, it’s clear we can save significant freight charges. If you put this guarantee in writing, I’ll sign with you now.”
9. Don’t overreach. Once you’ve gotten a concession, don’t try to change the terms to get more on that particular issue, or you risk losing goodwill.
10. Focus on what you will do. Try to avoid saying “no” outright. Instead, keep the process positive by saying something like, “I will do this, if you will do that.”
11. Make sure you actually want concessions. Be careful what you ask for and offer. You may toss out an outrageous suggestion in the belief the other party will never go for it. But what if they do? One good example is a salary negotiation between a staff member and the boss. The employee believes herself to be indispensable and says that she’ll quit if she doesn’t get the raise she wants, only to have the employer thank her for her service and accept the offer.
12. Remember your bottom line. Make up your mind that if you can’t reach a suitable agreement, you’ll walk away. It’s not that different from buying a car. No matter how many extras the salesman throws in, if he won’t come down to the price you want, it’s a win/lose deal, with you on the losing end.

While engaging in negotiations, consider learning of the ways that Yeo & Yeo can partner with you for your consulting needs. Our real-life Michigan business consulting experiences provide you with specialized professionals that understand your business and industry challenges.

Maybe it’s a good thing that the April 15th federal tax deadline coincides with the urge to spring clean. It feels good to throw out some of the financial records stuffing your filing cabinets. But before you head for the dumpster, make sure you’re not disposing of records you may need. You don’t want to be caught empty-handed if an IRS auditor contacts you.

In general, you must keep records that support items shown on your individual tax return until the statute of limitations runs out — generally, three years from the due date of the return or the date you filed, whichever is later. That means that now you can generally throw out records for the 2012 tax year, for which you filed a return in 2013.

In most cases, the IRS can audit your return for three years. You can also file an amended return on Form 1040X during this time period if you missed a deduction, overlooked a credit or misreported income.

So, does that mean you’re safe from an audit after three years? Not necessarily. There are exceptions. For example:

If the IRS has reason to believe your income was understated by 25 percent or more, the statute of limitations for an audit increases to six years.
If there is suspicion of fraud or you don’t file a tax return at all, there is no time limit for the IRS.

How Long to Keep Documents

Like most issues involving the IRS or other government agencies, there’s no easy answer to that question. The IRS does not require you to keep records in any particular way. But here are some basic guidelines to follow for individuals:

Completed tax returns. Many tax advisers recommend that you hold onto copies of your finished tax returns forever. Why? So you can prove to the IRS that you actually filed. Even if you don’t keep the returns indefinitely, you should hang onto them for at least six years after they are due or filed, whichever is later.

Backup records. Any written evidence that supports figures on your tax return, such as receipts, expense logs, bank notices and sales records, should generally be kept for at least the three-year period.

Exceptions. There are some cases when taxpayers get more than the usual three years to file an amended return. You have up to seven years to take deductions for bad debts or worthless securities, so don’t toss out records that could result in refund claims for those items.

Real estate records. Keep these for as long as you own the property, plus three years after you dispose of it and report the transaction on your tax return. Throughout ownership, keep records of the purchase, as well as receipts for home improvements, relevant insurance claims, and documents relating to refinancing. These help prove your adjusted basis in the home, which is needed to figure the taxable gain at the time of sale, or to support calculations for rental property or home office deductions.

Securities. To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, dividend reinvestment, and investment expenses, such as broker fees. Keep these records for as long as you own the investments, plus the statute of limitations on the relevant tax returns.

Individual Retirement Accounts (IRAs). The IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRA accounts. With the introduction of Roth IRAs, it’s more important than ever to hold onto all IRA records pertaining to contributions and withdrawals in case you’re ever questioned.

If an account is closed, treat IRA records with the same rules as securities. Don’t dispose of any ownership documentation until the statute of limitations expires.

Issues affecting more than one year. Records that support figures affecting multiple years, such as carryovers of charitable deductions, net operating loss carrybacks or carry forwards or casualty losses, need to be saved until the deductions no longer have effect, plus seven years, according to IRS instructions.

These general recordkeeping guidelines are for individual tax purposes. Insurance companies and creditors may have other requirements. Businesses have different requirements. Contact your advisers for more information.

Yeo & Yeo is pleased to announce that Kristi Krafft-Bellsky, CPA, has been promoted to Director of Quality Control.

Krafft-Bellsky is responsible for internal quality control throughout Yeo & Yeo’s nine offices. She oversees the development and implementation of policies and processes to comply with professional standards and regulatory requirements. She also assists in the standardization of work papers and financial statements across the firm to ensure technical compliance and efficient processes. Krafft-Bellsky, with the assistance of the Yeo & Yeo Quality Assurance Committee, will oversee the peer review process and conduct the internal inspections of files to guarantee that Yeo & Yeo continues to provide quality services for clients.

Krafft-Bellsky joined Yeo & Yeo in 2003, most recently holding the position of Senior Manager in the firm’s audit group. In 2013, she led the development of the firm’s award-winning LEAN Audit Process that continues to significantly benefit the firm, the professional staff and the firm’s clients. Krafft-Bellsky is a member of the firm’s Audit Services Group and Education Services Group.

Krafft-Bellsky is based in Yeo & Yeo’s Saginaw accounting firm office. She holds a Bachelor of Professional Accountancy and a Master of Science in Accountancy from Western Michigan University. In our community, Krafft-Bellsky is a member of the Frankenmuth Jaycees and treasurer of the Frankenmuth Community Foundation’s Legacy Ball Committee. She is a graduate of the 1000 Leaders and Leadership Saginaw programs.

We welcome you to connect with Kristi on LinkedIn.