Newsletters

The White House is looking to lower the Internal Revenue Service budget by $1.4 billion in fiscal year 2027.

The White House is looking to lower the Internal Revenue Service budget by $1.4 billion in fiscal year 2027.

The budget request, released April 6, 2026, says the overall budget request for the agency will “streamline IRS operations utilizing technology improvements to help focus the IRS on providing high-quality customer service while ensuring the tax laws are fairly administered.”

The request highlighted two areas where it is currently saving money – ending the Direct File program and reducing staffing by 27 percent total – since January 2025.

The decrease accounts for most of the White House’s overall decreased budget request for the Department of the Treasury. The Trump Administration is an $11.5 billion budget for fiscal year 2027, a 12-percent decrease ($1.5 billion) from the budget enacted for fiscal year 2026.

The Office of the Inspector General would see a $4 million decrease to $44 million from the $48 million level in 2026, while the Treasury Inspector General for Tax Administration would see a decrease from $220 million to $206 million.

The IRS has issued final regulations for the "no tax on tips" deduction under Code Sec. 224, which was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The final regulations adopt proposed regulations that were issued in September 2025 ( NPRM REG-110032-25), with modifications and clarifications in response to comments received.

The IRS has issued final regulations for the "no tax on tips" deduction under Code Sec. 224, which was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The final regulations adopt proposed regulations that were issued in September 2025 ( NPRM REG-110032-25), with modifications and clarifications in response to comments received.

Background

Under Code Sec. 224, an eligible individual can claim an income tax deduction for qualified tips received in tax years 2025 through 2028. The deduction is limited to $25,000 per tax year, and starts to phase out when modified adjusted gross income is above $150,000 ($300,000 for joint filers). An employer must report qualified tips on an employee‘s Form W-2, or the employee must report the tips on Form 4137. A service recipient must report qualified tips on an information return furnished to a nonemployee payee (Form 1099-NEC, Form 1099-MISC, Form 1099-K).

A "qualified tip" is a cash tip received in an occupation that customarily and regularly received tips on or before December 31, 2024. An amount is not a qualified tip unless (1) the amount received is paid voluntarily without any consequence for nonpayment, is not the subject of negotiation, and is determined by the payor; (2) the trade or business in which the individual receives the amount is not a specified service trade or business under Code Sec. 199A(d)(2); and (3) other requirements established in regulations or other guidance are satisfied.

The proposed regulations provided eight broad categories of occupations that customarily and regularly received tips on or before December 31, 2024. For each occupation, the list provided a numeric Treasury Tipped Occupation Code (TTOC), an occupation title, a description of the types of services performed in the occupation, illustrative examples of specific occupations, and the related Standard Occupation Classification (SOC) system code(s) published by the Office of Management and Budget (OMB).

List of Occupations that Receive Tips

The final regulations made several modifications to the list of the occupations set forth in the proposed regulations. Three new occupations were added:

• "Visual Artists" and "Floral Designers" were added to the Personal Services category; and
• "Gas Pump Attendants" was added to the Transportation and Delivery category.

The final regulations also made changes and clarifications under several of the occupation categories, including:

• Beverage & Food Service – For the "Wait Staff" occupation, "banquet staff" has been added as an illustrative example, and the occupation's description has been modified to include catered events. The "Food Servers, Non-restaurant" occupation has been changed to "Food and Beverage Servers, Non-restaurant," to clarify that winery tasting room servers are covered by this category.
• Entertainment and Events – The preamble to the final regulations states that "table game supervisors" are covered by the "Gambling Dealers" occupation. The IRS also clarified that individuals dressed up as Santa Claus, as well as other characters or celebrities, are covered by the "Entertainers and Performers" occupation.
• Hospitality and Guest Services – "Doorman" has been added to the list of illustrative examples for the "Baggage Porters and Bellhops" occupation.
• Personal Services – To clarify that resident care is included in the "Personal Care and Service Workers" occupation, the description in the list provides that "work is performed in various settings depending on the needs of the care recipient and may include locations such as their home, place of work, out in the community, at a daytime nonresidential facility or a residential facility." The "Pet Caretakers" occupation has been renamed as the "Pet and Show Animal Caretakers" occupation, and "horse groomer" has been added to the list of illustrative examples.
• Personal Appearance and Wellness – The "Eyebrow Threading and Waxing Technicians" occupation has been renamed as the "Eyebrow and Eyelash Technicians" occupation, and additions were made to the description in the list to include eyelash technicians.
• Recreation and Instruction – The "Travel Guides" occupation now includes a parenthetical noting that both indoor and outdoor locations are covered.
• Transportation and Delivery - "App/platform based delivery person" has been added to the illustrative list in both the "Goods Delivery People" occupation and the "Taxi and Rideshare Drivers and Chauffeurs" occupation. Also, the phrase "over established routes or within an established territory" has been removed from the description of the "Goods Delivery People" occupation.

The final regulations clarify that apprentices and assistants qualify under the applicable TTOC occupation category if they perform the same services as those listed in the TTOC occupation description.

Chiropractors, accountants, tax preparers, concert merchandise sellers, and "low bono" legal service providers were not added to the occupations list, despite requests in the comments to add these to the list.

No occupations included on the occupations list in the proposed regulations were removed from the list in the final regulations.

Voluntary Tips

Regarding the requirement that qualified tips must be voluntary, it is clarified that the customer must have the option to reduce the tip amount to zero. Tip selection methods such as Point-of-Sale (POS) systems with a tip slider that goes to zero or an option for the customer to select "other" and input zero are voluntary. Examples in the final regulations have been modified to clarify that these methods are considered voluntary tipping practices.

Further, the final regulations state that situations where nonpayment of a tip is "without consequence" include situations where nonpayment of the tip does not have any impact on the scope or cost of the service. The final regulations also contain a new example where the tip is part of a contract that is entered into before the services are provided. The example concludes that the tip is a qualified tip because it is paid without consequence. If the customer had chosen to not pay the tip, then the scope or cost of the service would not have been affected.

The final regulations include two new examples to help clarify when payments to digital content creators are tips and when they are compensation. It is also clarified that tipping digital content creators through audience engagement mechanisms that result in superficial digital rewards, such as highlighted messages or other digital tokens of appreciation from the tip recipient that are negligible in value, do not disqualify an otherwise qualified tip.

Other Matters

The final regulations state that amounts received as a tip that are not separately reported to an individual on a statement furnished to the individual pursuant to Code Secs. 6041(d)(3), 6041A(e)(3), 6050W(f)(2), or 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor) are not eligible for the tips deduction. (The preamble recognizes, however, that Notice 2025-69 provides transition rules for this for 2025.)

It is also clarified that "cash tips" include amounts paid in foreign currency. Rules are also provided for tips received by digital tipping systems.

Regarding abuse of the tips deduction, the final regulations replace the provision prohibiting ownership in or employment by a payor with a provision stating that an amount is not a qualified tip, and thus not eligible for the deduction if, based on all relevant facts and circumstances, the amount represents a recharacterization of wages or payments for goods or services for purposes of claiming the deduction.

Effective Date

The final regulations are effective on June 12, 2026, the date that is 60 days after publication in the Federal Register.

T.D. 10044

IR 2026-49

The IRS issued updated frequently asked questions (FAQs) addressing educational assistance programs under Code Sec. 127. The FAQs provide general guidance on eligibility, tax treatment of benefits, and recent legislative updates.

The IRS issued updated frequently asked questions (FAQs) addressing educational assistance programs under Code Sec. 127. The FAQs provide general guidance on eligibility, tax treatment of benefits, and recent legislative updates.

General Background

The FAQs explained that a Code Sec. 127 educational assistance program is a written employer plan that provides benefits exclusively to employees. The program must satisfy nondiscrimination requirements that prevent preferential treatment for highly compensated employees, shareholders or owners.

Exclusion Limits and Tax Treatment

The FAQs clarified that employees could exclude up to $5,250 per year in educational assistance benefits for the tax years at issue. The limit applied to combined benefits, including tuition and qualified education loan repayments. Amounts exceeding this limit were taxable and unused amounts could not be carried forward. Expenses covered under Code Sec. 127 could not be used for other credits or deductions.

Eligible and Non-Eligible Benefits

Eligible benefits included tuition, fees, books, supplies, equipment and payments of principal or interest on qualified education loans. These benefits could be provided for undergraduate or graduate courses and did not need to be job-related. However, meals, lodging, transportation and equipment that employees could retain were not eligible. Courses involving hobbies or sports were not eligible unless required for a degree or related to the employer’s business.

Eligibility and Other Provisions

The FAQs emphasized that benefits were limited to employees and included restrictions on owners and shareholders to ensure compliance with nondiscrimination rules. Other provisions, such as working condition fringe benefits, could allow additional exclusions depending on the facts.

FS-2026-10

IR 2026-55

The IRS has issued procedures for nominating population census tracts that would be designated as qualified opportunity zones (QOZs). The tracts would designated as QOZs effective on January 1, 2027. The guidance was directed at Chief Executive Officers (CEO) of States, territories of the United States and the District of Columbia. The procedures fell under Reg. §§1400Z-1 and Code Sec. 1400Z-2, as amended by the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21).

The IRS has issued procedures for nominating population census tracts that would be designated as qualified opportunity zones (QOZs). The tracts would designated as QOZs effective on January 1, 2027. The guidance was directed at Chief Executive Officers (CEO) of States, territories of the United States and the District of Columbia. The procedures fell under Reg. §§1400Z-1 and Code Sec. 1400Z-2, as amended by the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21).

Background

A QOZ is an economically distressed area in which select new investments could be eligible for preferential tax treatment. The OBBBA makes the QOZ tax incentive permanent. The first round of QOZ designations following the enactment of the OBBBA will take effect on January 1, 2027. New rounds would follow every 10 years. Additionally, the OBBBA added tax benefits specific to investments made into QOZs that are comprised entirely of a rural area.

Identities of LICs

The Treasury and IRS identified 25,332 population census tracts that are low-income communities (LIC) eligible for nomination as a 2027 QOZ. Out of said tracts, 8,334 tracts are comprised entirely of a rural area. Beginning July 1, 2026, and lasting a period of 90 days, subject to a single 30-day extension, State CEOs would begin nominating eligible census tracts to be designated as QOZs.

The number of population census tracts in a State that may be designated as QOZs may not exceed 25 percent of the number of LICs in the State. This limitation is determined based on the 2020-2024 American Community Survey (ACS) 5-Year and the 2020 Decennial Census of Island Areas (DECIA) data sets. The tracts were identified using said data sets.

Further, boundaries established for the 2020 decennial census are controlling. They would not be subject to change during the 2027 QOZ designation period.

Nomination Tool

The Treasury has been developing a nomination tool. This would be accessible online and available for the benefit of State CEOs that nominate census tracts for designation as 2027 QOZs.

The QOZ designation period will begin on January 1, 2027, and end on December 31, 2036. Any request to modify such a nomination after October 28, 2026, would be denied. Finally, nominations of tracts not mentioned in this document would be considered, provided they satisfy Code Sec. 1400Z-1(c)(1).

Effective Date

This revenue procedure is effective on April 6, 2026.

Rev. Proc. 2026-14

IR 2026-45

The IRS has provided a waiver of the addition to tax under Code Sec. 6654 for the underpayment of estimated income tax by qualifying farmers and fishermen.

The IRS has provided a waiver of the addition to tax under Code Sec. 6654 for the underpayment of estimated income tax by qualifying farmers and fishermen. Under Code Sec. 6654(i)(1), a qualifying farmer or fisherman has only one required installment payment (instead of four quarterly payments) due on January 15 of the year following the taxable year if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either the tax year or the preceding tax year. For a qualifying farmer or fisherman who does not make the required estimated tax installment payment by January 15 of the year following the tax year, Code Sec. 6654(i)(1)(D) provides that the taxpayer is not subject to an addition to tax for failing to pay estimated income tax if the taxpayer files the return for the tax year and pays the full amount of tax reported on the return by March 1 of the year following the tax year.

Difficulty in Electronic Filing of Form 8995

The IRS has noted that some qualifying farmers and fishermen were unable to electronically file Form 8995, Qualified Business Income Deduction Simplified Computation, which was required to be included in their 2025 tax returns. Due to this inability, farmers and fishermen may have had difficulty filing their 2025 tax returns electronically by the March 2, 2026 due date. Accordingly, the IRS has determined to waive certain penalties for qualifying farmers and fishermen due to these unusual circumstances.

Waiver of Underpayment of Estimated Income Tax

The IRS has waived the addition to tax under Code Sec. 6654 for failure to make an estimated tax payment for the 2025 tax year for any qualifying farmer or fisherman who files a 2025 tax return and pays in full any tax due on the return by April 15, 2026. The waiver will apply to any taxpayer who is a qualifying farmer or fisherman for the 2025 tax year and fulfills the conditions stated in the previous sentence. Further, the waiver will apply automatically to any taxpayer who qualifies for the waiver and does not report an addition to tax under Code Sec. 6654 on the 2025 tax return.

In addition, taxpayers who otherwise satisfy the criteria for relief under the IRS’ notice, but have already filed a return and reported an addition to tax, may request an abatement of the addition to tax by filing Form 843, Claim for Refund and Request for Abatement, in accordance with the prescribed instructions.

Notice 2026-24

State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures.

State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2026:

• calendar-year population-based component of the state housing credit ceiling under Code Sec. 42(h)(3)(C)(ii);
• calendar-year private activity bond volume cap under Code Sec. 146; and
• exempt facility bond volume limit under Code Sec. 142(k)(5).

These figures are derived from the estimates of the resident populations of the 50 states, the District of Columbia and Puerto Rico, which were released by the Bureau of the Census on January 27, 2026. The figures for the insular areas of American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands are the 2025 midyear population figures in the U.S. Census Bureau’s International Database.

Notice 2026-22

Internal Revenue Service CEO Frank Bisignano promoted some of the highlights of the 2026 tax filing season before a congressional committee while deflecting questions about data leaks and other issues.

Internal Revenue Service CEO Frank Bisignano promoted some of the highlights of the 2026 tax filing season before a congressional committee while deflecting questions about data leaks and other issues.

Testifying April 15, 2026, during a Senate Finance Committee hearing, Bisignano used his opening statement to promote the highlights of the tax filing season, including:

• 134 million individual returns filed, with 98 percent filed electronically;
• 80 million refunds issued with 98 percent of funds sent electronically; and
• An average refund of more than $3,400 (up 11 percent from last year), with more than 90 percent received by taxpayers in less than 21 days.

He also stated that 53 million American have taken advantage of new tax breaks found in the One Big Beautiful Bill Act, including the No Tax On Tips (6 million filers), No Tax On Overtime (25 million filers), and No Tax On Car Loan Interest provision (1 million filers), as well as the deduction for seniors (30 million filers).

“When you look at all this, it’s the reason we talk about the historic refunds,” Bisignano testified.

These, along with the increase to the standard deduction and the child tax credit, along with the full expensing for capital investments being made permanent “prevented a tax increase of over $5 trillion on American families and small businesses,” Bisignano testified.

Bisignano defended the decision to end the Direct File program, noting that 2 million Americans have used a free file option, adding that “Direct File was a costly, unnecessary, and less popular duplicate of programs that already are in place.”

He continued: “Despite heavy promotion by the Biden Administration, Direct File was the by far the least used free filing option.”

When faced with questions regarding data breeches, including information given to ICE by Treasury and other data breeches, Bisignano refused to answer, stating that ongoing litigation was preventing him from commenting in the case of the information given to ICE, and that ongoing investigations in other data breeches precluded him from discussing them.

He also refused to express even a general opinion on the lawsuit filed by President Trump on the leaking of his tax information.

When challenged on the tax gap, Bisignano challenged assertions that it more than $1 trillion. Bisignano said the last published number was $650 billion and added that it was “big enough so we don’t have to debate the trillion.” He said the agency was working on a plan to address it but did not offer any specifics as to what the IRS had planned to close the tax gap. He did say the agency has increased the dollar amount of money recovered from compliance activities.

“Collections and enforcement is up 12 percent, and this is year to date,” he testified, adding that more than $2 billion has been collected in the top five audits.

By Gregory Twachtman, Washington News Editor

The Taxpayer Advocacy Panel (TAP) has released its 2025 Annual Report. The report highlighted accomplishments and ongoing efforts to (1) strengthen IRS delivery; (2) improve communications with taxpayers; (3) reduce taxpayer burden; and (4) support continued modernization of tax administration. The TAP project committees submitted 20 project referrals to the IRS, including 188 recommendations for improving IRS operations and enhancing taxpayer experience.

Limited liability companies (LLCs) remain one of the most popular choice of business forms in the U.S. today. This form of business entity is a hybrid that features the best characteristics of other forms of business entities, making it a good choice for both new and existing businesses and their owners.

Limited liability companies (LLCs) remain one of the most popular choice of business forms in the U.S. today. This form of business entity is a hybrid that features the best characteristics of other forms of business entities, making it a good choice for both new and existing businesses and their owners.

An LLC is a legal entity existing separately from its owners that has certain characteristics of both a corporation (limited liability) and a partnership (pass-through taxation). An LLC is created when articles of organization (or the equivalent under each state rules) are filed with the proper state authority, and all fees are paid. An operating agreement detailing the terms agreed to by the members usually accompanies the articles of organization.

Choosing the LLC as a Business Entity

Choosing the form of business entity for a new company is one of the first decisions that a new business owner will have to make. Here's how LLCs compare to other forms of entities:

C Corporation: Both C corporations and LLCs share the favorable limited liability feature and lack of restrictions on number of shareholders. Unlike LLCs, C corporations are subject to double taxation for federal tax purposes - once at the corporate level and the again at the shareholder level. C corporations do not have the ability to make special allocations amongst the shareholders like LLCs.

S Corporation: Both S corporations and LLCs permit pass-through taxation. However, unlike an S corporation, an LLC is not limited to the number or kind of members it can have, potentially giving it greater access to capital. LLCs are also not restricted to a single class of stock, resulting in greater flexibility in the allocation of gains, losses, deductions and credits. And for estate planning purposes, LLCs are a much more flexible tool than S corporations

Partnership: Partnerships, like LLCs, are "pass-through" entities that avoid double taxation. The greatest difference between a partnership and an LLC is that members of LLCs can participate in management without being subject to personal liability, unlike general partners in a partnership.

Sole Proprietorship: Companies that operate as sole proprietors report their income and expenses on Schedule C of Form 1040. Unlike LLCs, sole proprietors' personal liability is unlimited and ownership is limited to one owner. And while generally all of the earnings of a sole proprietorship are subject to self-employment taxes, some LLC members may avoid self-employment taxes under certain circumstances

Tax Consequences of Conversion to an LLC

In most cases, changing your company's form of business to an LLC will be a tax-free transaction. However, there are a few cases where careful consideration of the tax consequences should be analyzed prior to conversion. Here are some general guidelines regarding the tax effects of converting an existing entity to an LLC:

C Corporation to an LLC: Unfortunately, this transaction most likely will be considered a liquidation of the corporation and the formation of a new LLC for federal tax purposes. This type of conversion can result in major tax consequences for the corporation as well as the shareholders and should be considered very carefully.

S Corporation to an LLC: If the corporation was never a C corporation, or wasn't a C corporation within the last 10 years, in most cases, this conversion should be tax-free at the corporate level. However, the tax consequences of such a conversion may be different for the S corporation's shareholders. Since the S corporation is a flow-through entity, and has only one level of tax at the shareholder level, any gain incurred at the corporate level passes through to the shareholders. If, at the time of conversion, the fair market value of the S corporation's assets exceeds their tax basis, the corporation's shareholders may be liable for individual income taxes. Thus, any gain incurred at the corporate level from the appreciation of assets passes through to the S corporation's shareholders when the S corporation transfers assets to the LLC.

Partnership to LLC: This conversion should be tax-free and the new LLC would be treated as a continuation of the partnership.

Sole proprietorship to an LLC: This conversion is another example of a tax-free conversion to an LLC.

While considering the potential tax consequences of conversion is important, keep in mind how your change in entity will also affect the non-tax elements of your business operations. How will a conversion to an LLC effect existing agreements with suppliers, creditors, and financial institutions?

Taxation of LLCs and "Check-the-Box" Regulations

Before federal "check-the-box" regulations were enacted at the end of 1996, it wasn't easy for LLCs to be classified as a partnership for tax purposes. However, the "check-the-box" regulations eliminated many of the difficulties of obtaining partnership tax treatment for an LLC. Under the check-the-box rules, most LLCs with two or more members would receive partnership status, thus avoiding taxation at the entity level as an "association taxed as a corporation."

If an LLC has more than 2 members, it will automatically be classified as a partnership for federal tax purposes. If the LLC has only one member, it will automatically be classified as a sole proprietor and would report all income and expenses on Form 1040, Schedule C. LLCs wishing to change the automatic classification must file Form 8832, Entity Classification Election.

Keep in mind that state tax laws related to LLCs may differ from federal tax laws and should be addressed when considering the LLC as the form of business entity for your business.

Since the information provided is general in nature and may not apply to your specific circumstances, please contact the office for more information or further clarification.

Maintaining good financial records is an important part of running a successful business. Not only will good records help you identify strengths and weaknesses in your business' operations, but they will also help out tremendously if the IRS comes knocking on your door.

Maintaining good financial records is an important part of running a successful business. Not only will good records help you identify strengths and weaknesses in your business' operations, but they will also help out tremendously if the IRS comes knocking on your door.

The IRS requires that business owners keep adequate books and records and that they be available when needed for the administration of any provision of the Internal Revenue Code (i.e., an audit). Here are some basic guidelines:

Copies of tax returns. You must keep records that support each item of income or deduction on a business return until the statute of limitations for that return expires. In general, the statute of limitations is three years after the date on which the return was filed. Because the IRS may go back as far as six years to audit a tax return when a substantial understatement of income is suspected, it may be prudent to keep records for at least six years. In cases of suspected tax fraud or if a return is never filed, the statute of limitations never expires.

Employment taxes. Chances are that if you have employees, you've accumulated a great deal of paperwork over the years. The IRS isn't looking to give you a break either: you are required to keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. These records include payroll tax returns and employee time documentation.

Business assets. Records relating to business assets should be kept until the statute of limitations expires for the year in which you dispose of the asset in a taxable disposition. Original acquisition documentation, (e.g. receipts, escrow statements) should be kept to compute any depreciation, amortization, or depletion deduction, and to later determine your cost basis for computing gain or loss when you sell or otherwise dispose of the asset. If your business has leased property that qualifies as a capital lease, you should retain the underlying lease agreement in case the IRS ever questions the nature of the lease.

For property received in a nontaxable exchange, additional documentation must be kept. With this type of transaction, your cost basis in the new property is the same as the cost basis of the property you disposed of, increased by the money you paid. You must keep the records on the old property, as well as on the new property, until the statute of limitations expires for the year in which you dispose of the new property in a taxable disposition.

Inventories. If your business maintains inventory, your recordkeeping requirements are even more arduous. The use of special inventory valuation methods (e.g. LIFO and UNICAP) may prolong the record retention period. For example, if you use the last-in, first-out (LIFO) method of accounting for inventory, you will need to maintain the records necessary to substantiate all costs since the first year you used LIFO.

Specific Computerized Systems Requirements

If your company has modified, or is considering modifying its computer, recordkeeping and/or imaging systems, it is essential that you take the IRS's recently updated recordkeeping requirements into consideration.

If you use a computerized system, you must be able to produce sufficient legible records to support and verify amounts shown on your business tax return and determine your correct tax liability. To meet this qualification, the machine-sensible records must reconcile with your books and business tax return. These records must provide enough detail to identify the underlying source documents. You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system.

Some additional advice: when your records are no longer needed for tax purposes, think twice before discarding them; they may still be needed for other nontax purposes. Besides the wealth of information good records provide for business planning purposes, insurance companies and/or creditors may have different record retention requirements than the IRS.

After your tax returns have been filed, several questions arise: What do you do with the stack of paperwork? What should you keep? What should you throw away? Will you ever need any of these documents again? Fortunately, recent tax provisions have made it easier for you to part with some of your tax-related clutter.

After your tax returns have been filed, several questions arise: What do you do with the stack of paperwork? What should you keep? What should you throw away? Will you ever need any of these documents again? Fortunately, recent tax provisions have made it easier for you to part with some of your tax-related clutter.

The IRS Restructuring and Reform Act of 1998 created quite a stir when it shifted the "burden of proof" from the taxpayer to the IRS. Although it would appear that this would translate into less of a headache for taxpayers (from a recordkeeping standpoint at least), it doesn't let us off of the hook entirely. Keeping good records is still the best defense against any future questions that the IRS may bring up. Here are some basic guidelines for you to follow as you sift through your tax and financial records:

Copies of returns. Your returns (and all supporting documentation) should be kept until the expiration of the statute of limitations for that tax year, which in most cases is three years after the date on which the return was filed. It's recommended that you keep your tax records for six years, since in some cases where a substantial understatement of income exists, the IRS may go back as far as six years to audit a tax return. In cases of suspected tax fraud or if you never file a return at all, the statute of limitations never expires.

Personal residence. With tax provisions allowing couples to generally take the first $500,000 of profits from the sale of their home tax-free, some people may think this is a good time to purge all of those escrow documents and improvement records. And for most people it is true that you only need to keep papers that document how much you paid for the house, the cost of any major improvements, and any depreciation taken over the years. But before you light a match to the rest of the heap, you need to consider the possibility of the following scenarios:

• • Your gain is more than $500,000 when you eventually sell your house. It could happen. If you couple past deferred gains from prior home sales with future appreciation and inflation, you could be looking at a substantial gain when you sell your house 15+ years from now. It's also possible that tax laws will change in that time, meaning you'll want every scrap of documentation that will support a larger cost basis in the home sold.
  • You did not use the home as a principal residence for a period. A relatively new income inclusion rule applies to home sales after December 31, 2008. Under the Housing and Economic Recovery Act of 2008, gain from the sale of a principal residence will no longer be excluded from gross income for periods that the home was not used as the principal residence. These periods of time are referred to as "non-qualifying use." The rule applies to sales occurring after December 31, 2008, but is based only on non-qualified use periods beginning on or after January 1, 2009. The amount of gain attributed to periods of non-qualified use is the amount of gain multiplied by a fraction, the numerator of which is the aggregate period of non-qualified use during which the property was owned by the taxpayer and the denominator of which is the period the taxpayer owned the property. Remember, however, that "non-qualified" use does not include any use prior to 2009.

• • You may divorce or become widowed. While realizing more than a $500,000 gain on the sale of a home seems unattainable for most people, the gain exclusion for single people is only $250,000, definitely a more realistic number. While a widow(er) will most likely get some relief due to a step-up in basis upon the death of a spouse, an individual may find themselves with a taxable gain if they receive the house in a property settlement pursuant to a divorce. Here again, sufficient documentation to prove a larger cost basis is desirable.

Individual Retirement Accounts. Roth IRA and education IRAs require varying degrees of recordkeeping:

• • Traditional IRAs. Distributions from traditional IRAs are taxable to the extent that the distributions exceed the holder's cost basis in the IRA. If you have made any nondeductible IRA contributions, then you may have basis in your IRAs. Records of IRA contributions and distributions must be kept until all funds have been withdrawn. Form 8606, Nondeductible IRAs, is used to keep track of the cost basis of your IRAs on an ongoing basis.

• • Roth IRAs. Earnings from Roth IRAs are not taxable except in certain cases where there is a premature distribution prior to reaching age 59 1/2. Therefore, recordkeeping for this type of IRA is the fairly simple. Statements from your IRA trustee may be worth keeping in order to document contributions that were made should you ever need to take a withdrawal before age 59 1/2.
  • Education IRAs. Because the proceeds from this type of an IRA must be used for a particular purpose (qualified tuition expenses), you should keep records of all expenditures made until the account is depleted (prior to the holder's 30th birthday). Any expenditures not deemed by the IRS to be qualified expenses will be taxable to the holder.

Investments. Brokerage firm statements, stock purchase and sales confirmations, and dividend reinvestment statements are examples of documents you should keep to verify the cost basis in your securities. If you have securities that you acquired from an inheritance or a gift, it is important to keep documentation of your cost basis. For gifts, this would include any records that support the cost basis of the securities when they were held by the person who gave you the gift. For inherited securities, you will want a copy of any estate or trust returns that were filed.

Keep in mind that there are also many nontax reasons to keep tax and financial records, such as for insurance, home/personal loan, or financial planning purposes. The decision to keep financial records should be made after all factors, including nontax factors, have been considered.

A. When you contribute an auto to a charitable organization, you must determine its fair market value at the time of the contribution to determine the amount of the charitable deduction on your tax return. For a contribution valued at over $5,000, a written appraisal is required and must be attached to the return.

While guides like the Kelly Blue Books are helpful and can provide a good estimate of the value of your auto, the values shown are not "official" and do not qualify as an appraisal of any specific donated property. Once a qualified appraisal of the property has been secured, you must complete Section B of Form 8283 for each item or group of items for which you claim a deduction of over $5,000. The organization that received the property must complete and sign Part IV of Section B. Failure to properly report the contribution on Form 8283 or attach the appraisal report can result in the IRS disallowing your deduction for your noncash charitable contribution. Please note that appraisal fees do not increase your charitable deduction but are miscellaneous itemized deductions on Schedule A of Form 1040.

Next ask, “how are we going to get there?” This will be your roadmap to realizing your vision. This requires careful planning, research and designing systems that will enable your organization to achieve its goals. Ultimately, your goal as a business owner is to create a valuable business. A valuable business that someone else will want to buy. You should be rewarded for your years of hard work. By planning and designing systems within your business, you will create a valuable asset that will be much more marketable when its time to sell.

As we all know travel plans sometimes must be changed. Your business is no different. External factors such as a new competitor or internal factors such as a change in personnel will require you to modify your business plan. You must have the ability to realize when this is the case and have alternative plans. The path to your business’ destination will more than likely be a winding one, but if you set long term goals, it could be a lucrative one.

If you’d like more information on strategic business planning, call and ask about our business enhancement services. We have helped many of our clients develop a vision and a plan for reaching it.