Record Keeping for Businesses Well-organized records will make it easier to prepare your tax return and will help you to answer questions if your return is selected for examination, or if you are billed for additional tax. If you are in business, there is no particular method of bookkeeping you must use. However, you must use a method that clearly reflects your income and expenses, such as expenses for travel, entertainment, gifts, and cars. The records should substantiate your expenses. We can also assist your company with your bookkeeping needs by providing your organization with Client Bookkeeping Solution (CBS). CBS is an innovative small business bookkeeping system that automates checkwriting and financial record-keeping functions and leaves the more complex accounting tasks for us, your accountant. Business Record Retention It is important to bear in mind that the appropriate time frame for record retention is dependent on legal, regulatory and business requirements and can vary from company to company.  The following, however are some guidelines: Permanent:  Stock and bond records; important cancelled checks; legal documents for contrats; legal correspondence; deeds; mortgages and bills of sale; depreciation schedules; financial statements; general ledgers and special journals; insurance records (except policies); corporate minutes; corporate charter and by-laws; property appraisals and other property records; tax returns and IRS documents; CPA audit reports 7 Years:  Accounts receivable and payable ledgers and schedules; accident reports and claims; ordinary cancelled checks; expired contracts and leases; inventory summaries; customer and vendor invoices; payroll records; purchase orders; sales records; voucher registers and underlying payment vouchers; subsidiary ledgers; plant ledgers; cancelled stock and bond certificates. 3 Years:  General correspondence; terminated employee personnel records; expired insurance policies; internal reports; petty cash vouchers; physicaial inventory tags; employee savings bond registration records. 1 Year:  Bank reconcilaitions; routine correspondence with customers and vendors; duplicate bank deposit slips; receiving reports; requisitions; stenogratphers' notebooks; stock withdrawal documents. Business Use of Car If you use your car in your job or business and you use it only for that purpose, you may deduct its entire cost of operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use. You can generally figure the amount of your business use of car expense one of two ways: the standard mileage rate method or the actual expense method. If you qualify to use either method, figure the deduction both ways to see which gives you a larger deduction. For 2004, the standard mileage rate is 37.5 cents a mile for all business miles driven. If you use the standard mileage rate, add any parking fees and tolls incurred for business purposes. To use the standard mileage rate, you must own or lease the car; the car must not be used for hire, for example as a taxi; you must not operate two or more cars at the same time, as in a fleet operation; and you must not have claimed a depreciation deduction using ACRS or MACRS (discussed later) on the car in an earlier year. Further, to use the standard mileage rate for a car you own, you must choose to use it in the first year you place the car in service in your business. Then, for a car you own, in later years, you can choose to use the standard mileage rate or actual expenses. However, for a car you lease, you must use the standard mileage rate method for the entire lease period (beginning after December 31, 1997), and you may not use the actual expense method. To use the actual expense method, you must determine what it actually cost to operate the car for business purposes. Include gas, oil, repairs, tires, insurance, registration fees, and depreciation (or lease payments) attributable to business miles driven. Also include parking fees and tolls attributable to business use. Generally, the Modified Accelerated Cost Recovery System (MACRS) is used by car owners to depreciate any car placed in service after 1986. Home Office Expenses To deduct expenses related to the business use of a part of your home, you must meet specific requirements. Even then, your deduction may be limited. To qualify to claim expenses for the business use of your home, you must meet the following tests: Your use of the business part of your home must be exclusive, regular, and used for your trade or business. It also must be either your principal place of business (a place where you meet or deal with patients, clients, or customers in the normal course of business) or, a separate structure used in connection with your trade or business. If you are an employee and you use part of your home for business, you may qualify for a deduction for its business use. You must meet the previous requirements and, additionally, the arrangement must be for the convenience of your employer; and there cannot be any rental arrangement with your employer for the space in question. If you qualify for a home office deduction under these rules, consult with your tax advisor for additional opportunities and limitations that should be considered. IRS Appeals Process The IRS has an appeals system for people who do not agree with the results of an examination of their tax returns or with other adjustments to their tax liability. If your examination or other adjustment was conducted through a personal interview with an IRS employee, the employee will explain your appeal rights to you. If you disagree with the findings, you may request a meeting with the employee's supervisor. If you still do not reach an agreement, or if the examination or other adjustment was conducted through correspondence, the IRS will provide you with a report and/or letter that explains the proposed adjustments and informs you of your right to request a conference with an appeals officer. The letter will also tell you how to make your request. If you request an appeals conference, be prepared to support your position. In addition to examinations, many other things can be appealed. Among them are penalties, including the trust fund recovery penalty, offers in compromise, employment tax adjustments, liens, levies, seizures, abatement of interest, and other claims. Appeals conferences are informal meetings. You may represent yourself at an appeals conference; or, if you wish, you may have an attorney, a certified public accountant, or an individual enrolled to practice before the IRS represent you. If you do not reach an agreement with the appeals officer, or if you do not wish to appeal within the IRS, you may take your appeal into the courts. Consult your tax advisor for additional information. Student Loan Interest Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of attending an eligible educational institution for themselves, their spouse, or their dependent generally may deduct interest they pay on these student loans. The maximum deduction is $2,500 ($2,000 for tax years prior to 2001)  To claim the maximum deduction, a taxpayer must have modified adjusted gross income of $50,000 or less ($100,000 for married taxpayers filing jointly). The amount of the taxpayer's deduction is gradually reduced for taxpayers with modified adjusted gross income between $40,000 and $55,000 (between $60,000 and $75,000 for married taxpayers filing jointly). The loan must have been used to pay the costs of attendance at an eligible educational institution for a student enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution that is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088) and, therefore, is eligible to participate in the student aid programs administered by the Department of Education. This category includes virtually all accredited public, nonprofit, and proprietary postsecondary institutions. For purposes of the student loan interest deduction, eligible educational institutions also include institutions that conduct an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Tuition Tax Credits The exclusion for employer-provided educational assistance available is up to $5,250 of employer-paid undergraduate educational expenses. Qualified expenses are excludable annually from an employee's income and wages if provided under an educational assistance plan. Both the HOPE Scholarship Credit and the Lifetime Learning Credit, which are nonrefundable, phase out over $40,000 to $50,000 of modified AGI ($80,000 to $100,000 for taxpayers filing jointly). The HOPE Credit (before the modified-AGI phaseout) is 100% of the first $1,000 plus 50% of the next $1,000 paid by the taxpayer for each eligible student's qualified tuition and related expenses (maximum of $1,500 per eligible student). In general, the amount must be paid during the tax year for education furnished to the eligible student during any academic period beginning during the year. This credit can be claimed for only two tax years for each eligible student. The Lifetime Learning Credit (before the modified-AGI phaseout) is 20% of the first $10,000 ($5,000 for tax years beginning before 2003) paid for qualified tuition and related expenses of eligible students. The Lifetime Learning Credit: (1) isn't based on the student's workload, (e.g., it can be claimed even if the student takes only one course); (2) is a per-taxpayer (rather than a per eligible student) limit, and (3) isn't limited to expenses for the first two years of post-secondary education (e.g., graduate-level degree costs are eligible). Additionally, there's no maximum period for which the Lifetime Learning Credit can be claimed for an eligible student.