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Questions You May Still Have After Filing Your Tax Return
Questions You May Still Have After Filing Your Tax Return 1275 750 smolinlupinco

Tax season is officially over, and if you’ve completed your 2022 tax return and sent it to the IRS, you might think you’re finished with taxes for another year. But you may still have some lingering questions about your return your return. Here are the answers to three frequently asked questions that come up for many people after they file a tax return.

When will I get my refund?

The IRS provides an online tool that can inform you of the status of your refund. Simply go to http://irs.gov and click the section marked “Get Your Refund Status.” You’ll be required to provide your Social Security number, filing status, and the exact amount of your 2022 refund.

Which tax records can I get rid of now?

It’s highly advisable to keep your tax records related to your return for as long as the IRS can audit your return or assess additional taxes. The standard statute of limitations is three years after you file your return. 

This means you can now technically throw away most of your records for tax returns for 2019 and earlier years. If you filed an extension for your 2019 return, be sure to hold on to your records until at least three years after the date you filed.

With that said, it’s important to note that the statute of limitations extends to six years for any taxpayer that understates their gross income by more than 25%. If this could be the case for you, you’ll need to hang on to certain tax-related records for longer.

For example, keep your actual tax returns indefinitely, so you can prove to the IRS that you filed legitimate returns. There’s no statute of limitations for an audit if you didn’t file a return or filed a fraudulent return.

When dealing with retirement accounts, keep the records associated with them until you’ve emptied the account and reported your final withdrawal on your tax return, plus three (or six) years. Make sure to keep records related to real estate or investments for as long as you own the asset, plus a minimum of three years after you’ve sold it and reported the sale on your tax return.

Can I still collect a refund for a tax credit or deduction if I overlooked claiming it?

Generally speaking, you can file an amended tax return and claim a refund within three years of the date you filed your original return or within two years of the date you paid the tax, whichever is later.

You should know that there are a few opportunities in which you have more time to file an amended return. For instance, the statute of limitations for bad debts is a bit longer than the standard three-year time limit for most items on your tax return. You can typically amend your tax return for the year that the debt became worthless.

Still have questions? Smolin is available to help all year long

If you still have questions about keeping your tax records, receiving your refund, or filing an amended return, contact the professionals at Smolin, and we’ll provide you with the accurate information and ensure you receive the best results possible.

Reporting Non-GAAP Measures
Reporting Non-GAAP Measures 1275 750 smolinlupinco

Generally Accepted Accounting Principles (GAAP) is commonly known as the benchmark for financial reporting in the United States. However, both public and private entities occasionally use non-GAAP metrics in their press releases and disclosures or when seeking financing.

GAAP vs. Non-GAAP

GAAP comprises a framework of rules and procedures that accountants typically follow to record and summarize business transactions. These guidelines establish the basis for consistent, accurate, and fair financial reporting. While private companies are not generally obligated to comply with GAAP, many choose to do so. Public companies, on the other hand, have no choice—they’re required by the Securities and Exchange Commission to follow GAAP. 

The use of non-GAAP measures has grown over the years, and some executives and investors maintain that certain unaudited figures provide a more meaningful representation of financial performance compared to customary earnings figures reported under the GAAP. With that said, it’s crucial to understand what’s included and excluded to avoid making misinformed investment decisions.

Spotlight on EBITDA

One prominent example of a non-GAAP metric is earnings before interest, taxes, depreciation, and amortization (EBITDA). This metric was created in the 1970s to help investors assist in forecasting a company’s long-term profitability and cash flow. EBITDA is considered one of the most valuable benchmarks investors use when evaluating a company that is being bought or sold. 

Unfortunately, some companies manipulate EBITDA figures by omitting certain costs, such as stock or options-based compensation, which are undeniably a cost of doing business. This practice has made it difficult for investors and lenders to make accurate comparisons and understand the items that have been removed.

Last year, the Financial Accounting Standards Board (FASB) added a project to its research agenda to explore the standardization of key performance indicators (KPIs) within the existing regulatory framework, including the development of a standardized definition for EBITDA. During a March meeting of the Financial Accounting Standards Advisory Council, senior accountants assessed the feasibility of establishing a GAAP definition of EBITDA for use as either a one-size-fits-all formula or as a starting point for companies to make adjustments based on their specific business requirements.

For instance, a company might tailor its EBITDA calculation to align with the definition specified in its loan agreements. Any modifications to EBITDA would need to be transparently disclosed in the company’s footnotes.

Adopt a balanced approach

Many organizations opt to report EBITDA and other non-GAAP metrics to help stakeholders and investors make better-informed choices. However, it is crucial for these entities to avoid making assertions that could potentially mislead investors and lenders. 

Have questions? Smolin can help

If you’re unsure of how the regulations on reporting non-GAAP measures will affect your business, or if you want to know more about which reporting style works best for you, contact our team of professionals at Smolin and let us walk you through the ins and outs of these rules.

Beware of the Gray Areas in Accounting
Beware of the Gray Areas in Accounting 1275 750 smolinlupinco

Recent high-profile bank failures have raised concerns about the reliability of accounting auditing standards. U.S. government agencies are still investigating the reasons behind the collapses of Silicon Valley Bank and Signature Bank earlier this year. 

However, it’s likely that these banks exploited some gray areas in the accounting rules to make them appear more economically secure in their year-end financial statements than they actually were. 

Learning from Enron

Andrew Fastow often speaks publicly about issues concerning financial misstatement. A convicted felon, Fastow has a unique experience with fraud: He was the CFO of Enron in October 2001, when it the company became famous for the largest U.S. bankruptcy case of its time. 

Fasto recently addressed the Public Company Accounting Oversight Board (PCAOB), which was established by the Sarbanes-Oxley Act of 2002 to prevent future scandals like Enron. He recommended that the PCAOB consider revising the accounting and auditing rules to deter corporate fraud. 

Rather than solely focusing on detecting deliberate fraudulent activities, Fastow urged the PCAOB to pay attention to the “fraud that arises from exploiting loopholes resulting from the ambiguity and complexity of the rules.” According to Fastow, this scenario played out in the Enron case, where misleading information was often a consequence of exploiting the complexities of the rules rather than intentionally reporting false numbers.

Compliance vs. reality

To illustrate how companies can exploit the complexities of accounting rules, Fastow provided a good example of how financial statements that are fully compliant with regulations can deviate from economic reality. 

Here is that example: In 2014, the average price of oil was $95 per barrel, and although the price hovered around $110 for most of the year and dropped to $50 at the end of the year, companies were required under the accounting rules of that time to calculate an average based on the price on the first day of each of the preceding 12 months. This calculation resulted in an average of $95 per barrel despite the market price being $50 when oil and gas companies issued their financial statements.

All oil and gas companies followed this rule, reporting reserves based on $95 per barrel even though the market price had dropped precipitously to $50 by the end of the year. Consequently, they massively overstated their economically recoverable reserves, a critical metric used by Wall Street when evaluating independent oil and gas companies. 

Fastow concluded that the prevailing mindset was that as long as the rules were being followed, the misleading nature of certain financial statements was deemed inconsequential.

A complex problem

A founding member of the PCAOB, Charles Niemeier, has acknowledged that resolving the issue of financial reporting fraud extends far beyond simply revising auditing standards. The challenge becomes even more daunting when dealing with financial reporting matters that rely on subjective judgments.

For example, accounting estimates can be based on subjective or objective information involving varying degrees of measurement uncertainty. Some examples of accounting estimates include allowances for doubtful accounts, impairments of long-lived assets, and valuations of financial and nonfinancial assets. While certain estimates may be straightforward, many are inherently subjective or intricate.

Another area prone to manipulation is the going concern assessment, which forms the foundation of all financial reporting, according to the U.S. Generally Accepted Accounting Principles. 

The accounting rules grant company management the final responsibility for determining whether or not there is substantial doubt about the company’s ability to continue as a going concern and disclosing the related information in footnotes. The standard provides management with guidance that aims to reduce the inconsistencies in the timing and content of disclosure commonly found in footnotes.

Misrepresentation of finances can occur in a variety of ways when executives seek to exploit the ambiguous aspects of financial reporting for their own benefit, particularly as regulations have transitioned from historical cost in favor of fair value estimates.

Have questions? Smolin can help

When making subjective estimates and evaluating the going concern assumption, it’s important to step back and ask whether your institution’s financial statements, even while they are in compliance with regulations, could potentially mislead investors. 

If you have questions about these issues, contact our team of professionals at Smolin, and we’ll help you understand the rules and assess current market conditions.

Important Tax News for Investors and Users of Cryptocurrency
Important Tax News for Investors and Users of Cryptocurrency 1275 750 smolinlupinco

If you use or invest in cryptocurrency, you may have seen something new on your tax return this year. And you may soon discover a new form reporting requirements for digital assets. 

Make sure you check the box

Starting from tax year 2022, taxpayers are required to check a box on their tax returns that indicates whether or not they received digital assets as a reward, award, or payment for services or property, or whether they disposed of any digital assets that were held as capital assets through exchanges, sales, or transfers. 

If you check the “yes” box, then you’re required to report all income related to any digital asset transactions.

A new information form for crypto users

According to the information recording rules, all brokers must report transactions in securities to both investors and the IRS. These transactions are reported on form 1099-B. Legislation enacted in 2021 extended these rules to crypto exchanges, custodians and platforms, as well as digital assets like cryptocurrency. 

These new requirements were set to be effective for returns required to be filed, and statements required to be furnished for transactions after 2022, but the IRS has since postponed the effective date until it issues a set of final regulations that provides instructions. 

In addition to extending this reporting requirement to cryptocurrency, the legislation also extends cash reporting rules for payments of $10,000 or more to cryptocurrency. This means that any business that accepts crypto payments of $10,000 or more is required to report those payments to the IRS on Form 8300. The rules apply to any transaction taking place in 2023 and beyond. 

Current rules and new reporting for digital assets

Currently, if you have a stock account, whenever you sell securities, you are issued a Form 1099-B. This form requires your broker to report details of transactions like sale proceeds, relevant dates, and your tax basis for the sale and the gain or loss. 

The 2021 legislation expanded the definition of “brokers” who are required to provide Form 1099-B to include businesses that regularly provide services involving the transfer digital assets on behalf of another individual. Once the IRS finalizes these regulations, any platform where you buy and sell crypto will be required to report digital asset transactions to you and the IRS.

These platforms and exchanges will be required to gather information from their customers so that they can issue Form 1099-B. They will need customers’ names, addresses, and phone numbers; the gross proceeds from sales, capital gains, or losses; and information on whether they were short or long-term proceeds.

It’s important to note that it’s not yet known whether the platforms or exchanges will be required to file Form 1099-B or a new IRS form.

Cash transaction reporting

Under another set of rules that are separate from the broker reporting rules, when a business receives over $10,000 in cash, it is required to report the transaction to the IRS, including the identity of the person from whom the cash was received. This is reported on Form 8300, and for this reporting requirement, businesses will need to treat digital assets the same as cash.

Form 8300 requires reporting information like occupation, address, and a taxpayer identification number. Current rules that apply to cash are usually applied to in-person payment in actual cash. This could make it difficult for businesses to comply with reporting rules when collecting the information needed for crypto transactions.

What you should know

If you’re using a crypto platform or exchange that hasn’t already collected a Form W-9 from you, expect it to do so in the future. Aside from collecting information from customers, these businesses will be required to begin tracking holding periods and buy-and-sell prices of any digital assets in customer accounts.

Stay up to date with Smolin 

If you want to find out how these new tax rules will affect you or your business, contact the knowledgeable professionals at Smolin for more information.

Simple Options for Retirement Savings Plans that can Benefit your Small Business
Simple Options for Retirement Savings Plans that can Benefit your Small Business 1275 750 smolinlupinco

If you’re considering creating a retirement plan for yourself and your employees but you’re concerned about the cost and administrative hurdles involved, take heart: there are some good options available to you. 

In this article, we’ll explore two types of plans that small business owners can use to get the ball rolling with retirement: Simplified Employee Penson (SEP) and Savings Incentive Match Plan for Employees (Simple).

A SEP is designed to be a viable alternative to “qualified” retirement plans and is geared toward small businesses. The relative ease of administration with this plan and your decision as an employer on whether or not to make annual contributions are two features of the plan that can be appealing to business owners. 

SEP setup can be easy for business owners

If your business doesn’t already have a qualified retirement plan, you can set up a SEP by using the IRS model SEP, Form 5305-SEP. When you adopt and implement this model SEP, which isn’t required to be filed with the IRS, you will satisfy the SEP requirements. 

This means that as the employer, you’ll get a current income tax deduction for the contributions you make on behalf of your employees. Employees won’t be taxed when contributions are made but will be taxed in the future when they receive distributions, typically at retirement. 

Depending on your requirements, an individually designed SEP might be a better choice for you than the model SEP.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to every employee’s IRA, known as a SEP-IRA, which are required to be approved by the IRS. The maximum amount of deductible contributions one can make to an employee’s SEP-IRA (and that the employee can exclude from income) is the lesser of either 25% of compensation or $66,000 for 2023. 

The deduction for your contributions to your employee’s SEP-IRA isn’t limited by the deduction ceiling that’s applicable to an individual’s contribution to a regular IRA. Your employees have control over their individual IRAs and IRA investments, on which the earnings are tax-free.

There are additional requirements that must be met in order to be eligible to set up a SEP: 

  • All regular employees must elect to participate in the program 
  • Contributions must not discriminate in favor of highly compensated employees

The requirements for creating a SEP are minor, though, compared to the administrative and bookkeeping burdens that come with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans are required to maintain in order to comply with complex nondiscrimination regulations are not not necessary with a SEP. Employers aren’t required to file annual reports with the IRS (which, in the case of a pension plan, could require the services of an actuary). Instead, all required recordkeeping can be handled by a trustee of the SEO-IRAs, usually a mutual fund or a bank.

Consider SIMPLE plans

Another viable option for businesses with fewer than 100 employees is a SIMPLE plan. With these plans, a “SIMPLE IRA” is established for each eligible employee. The employer makes matching contributions based on the contributions chosen by participating employees under a qualified salary reduction arrangement.

Like a SEP, a SIMPLE plan also comes with much less stringent requirements than traditional qualified retirement plans. 

Another option is for an employer to adopt a “simple” 401(k) plan, with features similar to a SIMPLE pan, which creates an automatic passage over the otherwise complex nondiscrimination test for 401(k) plans.

For 2023, SIMPLE deferrals are allowed up to $15,500 plus an additional $3,500 for catch-up contributions available to employees aged 50 and older.

Questions about retirement savings? Smolin can help.

If you’re looking for manageable options to help create retirement plans for yourself of your employees, contact Smolin today. Our knowledgeable team of accounts can help you decide which plan works best for you and walk you through the process.

New and Improved Accounting Rules for Common Control Leases
New and Improved Accounting Rules for Common Control Leases 1275 750 smolinlupinco

On March 27, 2023, the Financial Accounting Standards Board (FASB) published narrowly drawn amendments to the lease accounting rules. This updated guidance clarifies issues pertaining to rental agreements between businesses with the same owner.

Written vs. verbal leases

Accounting Standards Update (ASU) No. 2023-01, Leases (Topic 842) Common Control Arrangements, explains how related business entities controlled by the same owner determine whether a lease exists. 

This guidance settles questions about how to approach verbal common control leases and whether legal counsel is required to determine the terms and conditions of a lease. Specifically, it gives an optional practical expedient to private businesses and not-for-profit organizations that aren’t conduit bond obligors. (A practical expedient is an accounting workaround that enables a business to use a more straightforward route to end up with the same outcome.)

The practical expedient is only applicable for written leases. Under the updated guidance, a business electing to use the practical expedient must follow the written terms and conditions of a common control arrangement to determine whether a lease exists and how to account for it. 

With a verbal lease agreement, as is typically the case between private entities under common control, the company must document the existing unwritten terms of the agreement before applying these lease accounting rules.

The lessee isn’t required to determine whether written terms and conditions are enforceable when applying the practical expedient. Additionally, businesses can use the practical expedient on an arrangement-by-arrangement basis.

Leasehold improvements

The accounting rules for certain leasehold improvements have also changed for public and private organizations under ASU 2023-01. Examples of leasehold improvements include:

  • Installing carpet 
  • Painting
  • Building out the space for the lessee’s needs

For example, a salon might install new plumbing fixtures and sinks, a chemical manufacturer could require ventilation for its production process, and a neighborhood restaurant may create a rooftop garden to attract new customers.

Under these amendments, lessees must amortize leasehold improvements over the improvements’ useful lives to the common control group, regardless of lease terms.

When the lessee no longer controls the underlying asset, the transfer of those improvements must be accounted for with either net asset or equity. The improvements will remain subject to the impairment requirements of Accounting Standards Codification (ASC) Topic 360, Property, Plant and Equipment.

Guidance for implementation

ASU No. 2023-01 is an amendment to ASC Topic 842, Leases, which was issued in 2016. It went into effect for public entities in 2019 and for private entities in 2022. This standard requires the full effect of entities’ long-term lease obligations to be reported on the balance sheet.

Starting on December 15, 2023, the updated regulations will be implemented for this and subsequent fiscal years. If a company decides to adopt these modifications during an interim period, it must be done at the beginning of the fiscal year that includes that interim period. However, early adoption is allowed for both interim and financial statements that have yet to be issued. 

If your business opts to adopt ASU 2023-01 concurrently with the adoption of Topic 842, you should use the same transition approach as this standard. If your company chooses to adopt these rules in a subsequent period, it must do this prospectively or retrospectively.

Need help understanding these rules? Get in touch. 

If your company rents from a related party, we can help you report these arrangements in alignment with this updated guidance. The accounting professionals at Smolin Lupin know how to determine whether a common control lease exists and how to report improvements and other fixes made to rented property.

If You Inherit Property, You Can Benefit From a “Stepped-Up Basis”
If You Inherit Property, You Can Benefit From a “Stepped-Up Basis” 1275 750 smolinlupinco

One of the most common questions for people planning their estates or inheriting assets is: What is the “cost” (or “basis”) a person gets in property that is inherited from someone else? This vital area is often overlooked when families start planning for the future.

According to the fair market value basis rules (otherwise known as the “step-up” and “step-down” rules), an heir can receive a basis in inherited assets equal to their date-of-death value. For example, if your uncle bought shares in an oil stock in 1942 for $500 and the stock was worth $5 million at the time of his death, the basis would be stepped up to $5 million for your uncle’s heirs, which means that the gain on the stock would escape income taxation forever.

Fair market value basis rules apply to any inherited property that can be included in the gross estate of the deceased individual, whether or not a federal estate tax return was filed. The rules apply even to property inherited from foreign individuals not subject to U.S. estate tax. 

Fair market value basis rules also apply to the inherited portion of the property jointly owned by the inheriting taxpayer and the deceased, but not to the portion of the jointly held property that the inheriting taxpayer owned prior to their inheritance. They don’t apply to reinvestments of estate assets on the part of fiduciaries. 

Lifetime gifting

It’s important to understand the fair market value basis rules so that you can avoid paying more tax than you’re legally required to.

For example, in the previous scenario, if your uncle instead decided to make a gift of the stock during his lifetime (rather than passing it down to his heirs when he died), the “step-up” in basis (from $500 to $5 million) would be lost.

Property acquired as a gift that has increased in value is subject to the “carryover” basis rules. This means that the person who received the gift takes the same basis the donor had in it ($500 in this example), plus a portion of any gift tax the donor pays on the gift. 

If someone dies owning property that has declined in value, a “step-down” occurs. In this case, the basis is lowered to the date-of-death value. Sound financial planning can help avoid this loss of basis, and it’s important to note that giving away the property before death won’t preserve the basis. 

Why is that? Because when a property that has gone down in value is given as a gift, the person who receives the gift must use the date of gift value as the basis for determining their loss on a later sale. An excellent strategy for handling a property that has declined in value is for the owner to sell it before death so they may enjoy the tax benefits of the loss. 

Have questions? Smolin can help

We’ve covered the basic rules here, but other rules and limits may apply. For example, in certain cases, a deceased person’s executor may be able to make an alternate valuation election, and gifts made just before a person died may be included in the gross estate for tax purposes. 

If you’re wondering how you can benefit from a “stepped-up basis” or need guidance with planning your estate, contact the knowledgeable professionals at Smolin. We’re ready to guide you through complicated tax laws to ensure you miss out on possible savings for your estate or inheritance.

Use the Rehabilitation Tax Credit to Your Advantage When Altering or Adding to Business Space
Use the Rehabilitation Tax Credit to Your Advantage When Altering or Adding to Business Space 1275 750 smolinlupinco

If your business occupies a large space and needs to expand or move to a new space in the future, it’s important to keep the rehabilitation tax credit in mind. If you appreciate the charm of historic buildings, this is especially true.

The federal rehabilitation tax credit is designed to encourage the preservation of historic properties and neighborhoods by private sector entities. It is administered by the IRS and the National Park Service. 

This tax credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure. A qualified rehabilitated building is a depreciable building that has been placed in service before rehabilitation has begun, is still in service after that rehabilitation, and is used for either business or the production of income (not held primarily for sale).

In addition to these rules, the building must be “substantially rehabilitated,” which typically requires that QREs for rehab are greater than $5,000 or the adjusted basis of the existing building.

A QRE is any amount that is chargeable to capital and has been incurred in connection with rehabilitation or reconstruction of an eligible building. QREs must be for an existing property, do not apply to land, and cannot include building acquisition or enlargement costs. 

The 20% credit is allocated ratably to each year in the five-year period beginning in the tax year in which the building was placed into service. The credit allowed in each year of the five-year period is 4% (20% divided by 5) of the QREs in regard to the building. This credit is allowed against both alternative minimum tax and regular federal income tax.

The Tax Cuts and Jobs Act, signed at the end of 2017, added some changes to the credit. Specifically, the law:

  • Requires taxpayers to take the 20% credit ratably over five years instead of in the year they placed the building into service
  • Eliminated the 10% rehabilitation credit for pre-1936 buildings

An experienced business accountant can explain the rehabilitation tax credit in-depth and assist you in discovering any other federal tax benefits available for the space you’re considering. For example, certain tax benefits may be available depending on your preference for how a building’s energy needs will be met and where the property is located. There may also be state or local tax and non-tax subsidies available for certain locations.

The professionals at Smolin Lupin do this and more, for example, collaborating with clients and construction professionals to determine whether a particular building can be the subject of a rehabilitation that’s both practical to use and tax-credit-compliant. 

If you find a building you wish to rehabilitate, we can help you monitor project costs and substantiate the compliance of the project in accordance with the requirements of the rehabilitation credit and any additional tax benefits for which you’re eligible.

Tax Rules for Donating Artwork to Charity
Tax Rules for Donating Artwork to Charity 1275 750 smolinlupinco

If you’re an art collector, you may be curious about the tax breaks that come with donating a work of art to charity. You should be aware that many different tax rules come into play when making these kinds of contributions.

Basic rules

A deduction for a donation of art can be reduced if the charity you donated to uses the art for a purpose or function that’s unrelated to the reason for its qualification as a tax-exempt organization. The reduction will be equal to the amount of capital gain you would have received if you sold the property instead of donating it.

Example: You bought a sculpture six years ago for $10,000, and it’s now worth $20,000. You contribute it to a charitable foundation. Your deduction is limited to $10,000 because the foundation’s use of the sculpture is unrelated to its charitable function, and you would have had a $10,000 long-term capital gain if you had sold it.

But what if you donated the sculpture to an art museum? In this instance, your deduction would be $20,000.

Substantiation requirements

There are substantiation rules that apply when you donate a work of art to charity. First, if you claim a deduction of less than $250, you’re required to obtain and keep a receipt from the charity, and you must keep records for any item you contributed.

If you claim a deduction of at least $250, but not more than $500, you’re required to obtain an acknowledgment of your contribution from the group you donated it to. The acknowledgment must state whether the organization gave you any goods or services in exchange for your donation and include a description with a good-faith estimate of the value. 

If you claim a deduction of more than $500, but less than $5,000, you’ll need to maintain records that include information about how and when you obtained the artwork and its cost basis in addition to getting an acknowledgment. You are also required to complete an IRS form and attach it to your tax return.

If the claimed value of the property you donated is more than $5,000, you must have an appraisal of the property in addition to the acknowledgment. Your appraisal must be completed by a qualified appraiser no more than 60 days before the date of the contribution and meet other requirements. You must include information about these donations on the IRS form you send with your tax return. 

If the total of your deduction is more than $20,000, you must attach a copy of the signed appraisal, and the IRS may require you to include a photograph. If the item has been appraised at $50,000 or more, you can request that the IRS issue a “Statement of Value,” which can be used to substantiate the value of your donation.

Percentage limitations

Additionally, your tax deduction may be limited to 20%, 30%, 50%, or 60% of your contribution base, which is typically your adjusted gross income. Percentages vary depending on the year in which the contribution is made, the type of organization, and whether the deduction was required to be reduced based on the unrelated use rule described above. The amount not deductible because of a ceiling may be deductible in the next year under carryover rules.

Partial interest gifts 

Sometimes donors make gifts of partial interests in artwork. For instance, a donor may contribute a 50% interest in a piece of artwork to a museum, with the agreement that the museum will exhibit it for six months of the year, and the donor will retain possession of it for the following six months. There are special requirements that apply to these donation agreements.

Make sure you get the most from your donations with Smolin

If you’re unsure of how to claim deductions for artwork you may have donated this tax year, or if you have further questions about how these deductions work, contact us for more information. 

Paperwork You Can Get Rid of After Filing Your 2022 Tax Return
Paperwork You Can Get Rid of After Filing Your 2022 Tax Return 1275 750 smolinlupinco

Once you have completed your 2022 tax return, you may be curious about what tax documents you can toss in the recycling bin and how long you should keep other important documentation. You might be required to produce these records if the IRS decides to audit your return or needs to assess tax.

It’s a smart move to keep all of your actual returns on hand indefinitely, but what about other supporting documents like canceled checks and receipts? Except in cases of fraud or a substantial understatement of income, the IRS can only assess your taxes within three years after you initially filed your return or three years after the return was due. 

For example, if you filed a 2019 tax return by its due date of April 15, 2020, the IRS has until April 15, 2023, to assess a tax deficiency. If you file late, however, the IRS has three years from the date you filed.

This period, however, can be extended to six years if more than 25% of your gross income is omitted from your tax return. Additionally, if no return is filed, the IRS can assess your taxes at any time. If the IRS claims you never filed a return for a specific year, a copy of your return will help you to prove that you did so.

Property-related records

The tax consequences of a transaction that takes place this year may depend on events that took place years ago. For example, if you purchased a new home in 2007, made capital improvements in 2014, and sold it this year, you would need to determine the tax consequences of the sale. 

To do this, you must know your basis in the home (your original cost), plus later capital improvements. If you’re audited, you may be required to provide records related to the original purchase in 2007 and the capital improvements in 2014 to prove what your basis is. This means you should keep those records for at least six years after filing your return for the year of sale.

Keep all your records related to home purchases and improvements, even if you expect your gain to be covered by a home-sale exclusion, which can be up to $500,000 for joint tax return filers. You’ll still need to prove the amount of your basis if the IRS inquires. Plus, there’s no telling what your home will be worth when you sell it, and there’s no guarantee that the home-sale exclusion will still be available to taxpayers at a later date.

Other considerations apply to property that’s likely to be bought and sold—think stock shares in a mutual fund or other investments. It’s important to note that if you reinvest dividends to buy additional shares, each reinvestment is a separate purchase.

Separation or divorce

In the event of a separation or divorce, make sure you have access to tax records related to you that are kept by your ex-partner. Better yet, make copies of these records so that you don’t have any difficulties accessing them. It’s important to keep copies of all joint returns filed and supporting documents because both spouses are liable for tax on a joint return, and a deficiency may be asserted against either spouse. 

Other important documents include: 

  • Agreements or decrees over custody of children. 
  • Agreements over who is entitled to claim children as dependents. 

Loss or destruction of records

To ensure that your records are protected against fire, theft, or other disasters, it’s worth considering keeping papers in a safe deposit box or another safe place outside of your home. Additionally, consider keeping copies of documents in an easily accessible location so that you can quickly secure them in case of an emergency.  

Make sure you’re ready for any tax issues with Smolin

If you want to find out which specific documents you should keep for any potential dealings with the IRS, contact us for more information. 

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