Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com 


What You Should Know About Sales and Use Tax Exemption Certificates
 
Business owners should be concerned about exemption certificates and understand when and why they should obtain them so they can minimize sales tax exposure should the business be audited.

Why are exemption certificates required?
Sales tax exemption certificates are required whenever a seller makes a sale of taxable goods or services, and does not collect sales tax in a jurisdiction, in which they are required to. The certificate is issued by a purchaser to make tax-free purchases that would normally be subject to sales tax. Most state sales tax exemption certificates do not expire and the seller is required to maintain exemption certificates for as long as sales continue to be made to the purchaser and sales tax is not collected. Exemption certificates are not required for items that are not taxable by statute.

Is there a global exemption certificate that can be used in multiple states?
No, unfortunately there are no global rules regarding exemption certificates. Each state has its own set of exemption certificates as well as rules and regulations covering their use.  However, some general rules do apply. For example, most states have broad categories of exemptions – resale, government, manufacturing, exempt organizations, telecommunications, agricultural, etc. Since not every state has every exemption in place, local rules and local compliance requirements must be considered.

Do states differ in their treatment of sales made to exempt organizations and governmental agencies?
Yes, states differ in their treatment of sales made to exempt organizations (501 (c) (3) status for income tax purposes) and governmental agencies. A general rule of thumb is that purchases by the Federal government are exempt in every state, but documentation requirements vary. Some states tax state and local government purchases including MN, SC, WA, CA, AZ and HI. States that do exempt state and local governmental agencies generally require the purchases must be for the exclusive use of the exempt entity and the exempt entity must be the payer of record.

Most clients think all sales made to not-for-profit 501 (c) (3) organizations are automatically exempt. This could be a costly presumption. In order for a not-for-profit to be exempt the organization must apply for, and be granted, exempt sales and use tax status in the state(s) in which they conduct business. Don’t be fooled by the organization’s exempt sounding name, ensure you obtain a properly completed exemption certificate if tax is not charged or you may be subject to penalties for not collecting sales tax.

As a seller, how do I know which exemption certificate applies to a transaction?
As noted above, there are no quick and easy rules regarding exemption certificates. Different certificates apply for different exemptions, and there may be unique certificates for specialized property or services. One must research the various tax department web sites or consult with their SALT advisor to determine which form applies.  For example, the New York State Department of Taxation and Finance’s website posts a very helpful Tax Bulletin, ST-240 Exemption Certificates for Sales Tax, which explains who may use exemption certificates, how to use them properly and which certificate should be used based upon general sales tax exemptions in the Tax Law. The bulletin can be found at: http://www.tax.ny.gov.

Why can’t a seller simply issue a Multi-Jurisdiction Certificate (MJC) as prescribed by the Multi-State Tax Commission or the Streamlined Sales Tax Agreement Exemption Certificate developed by the Streamlined Sales and Use Tax Governing Board ? 
As discussed above, sales and use tax rules vary by state.  To help sellers meet their 
multi-jurisdictional obligations, many states have joined the Multi-State Tax Commission or the Streamlined Sales Tax Project.

The Multistate Tax Commission is an intergovernmental state tax agency working on behalf of states and taxpayers to administer, equitably and efficiently, tax laws that apply to multistate and multinational enterprises. The Commission has developed a Uniform Sales and Use Tax Certificate that 38 States accept for use as a "blanket" resale certificate (the use of this certificate is not valid in New York State and several others). States however vary in their rules regarding requirements for reseller exemption. Some states require that the reseller (purchaser) be registered to collect sales tax in the state where the reseller makes its purchase. Other states will accept the certificate if an identification number is provided for another state (e.g., the home state of the purchaser). One must check with the appropriate state to determine whether you meet the requirements of that state to be considered a reseller and if one can use the MJC to claim an exemption from sales tax.

The Streamlined Sales and Use Tax Project (“SSTP”) is a cooperative effort of 44 states and the business community to simplify sales and use tax collection administration by retailers and states. As a means to make it easier for retailers and remote sellers who operate in multiple states to conduct their business in a fair and competitive environment, the Governing Board of the SSTP developed a multi-state exemption certificate, the Streamlined Sales Tax Agreement Exemption Certificate. The certificate provides a variety of exemptions and is not limited to resale type of transactions. Not all states allow all exemptions listed on this form and states such as New York do not accept the use of this certificate as a valid exemption certificate. Purchasers are responsible for determining if they qualify to claim exemption from tax in the state that would otherwise be due tax on the sale. So, depending upon the rules in a given jurisdiction and their level of participation in the MJC or SSTP different exemptions and filing requirements could apply.

What is meant by a “properly completed” certificate?
In most states a properly completed exemption certificate means the certificate is completed in its entirety by the purchaser, i.e. every line required to be completed is completed by the purchaser issuing the certificate. Most states require that the properly completed certificate be obtained within 90 days of the date of sale and that a seller accept the certificate in “good faith”. Accepting a certificate in good faith means that the seller has no reason to believe that what the purchaser has indicated on the certificate is not true.

What happens if a seller didn’t obtain a properly completed exemption certificate and can’t locate the customer to obtain a new one because they are no longer in business?
In most audit situations a non-taxable sale not supported by a properly completed exemption certificate will be disallowed and sales tax will be assessed against the seller, even though sales tax, in general, is a “consumer tax."  To make matters worse, since most non-taxable sales are reviewed using a “test period audit method” (a limited period is “tested” and an error rate is developed which is projected throughout the audit period) the sales tax due on each disallowed sale will be “projected” throughout the entire audit period. A missing or incomplete exemption certificate can create unnecessary exposure on an audit due to the mathematical compounding of the error rate:

Say the auditor tests a total of $525,000 worth of non-taxable sales for a one month period. Of that amount, the auditor disallows $12,000 worth of the non-taxable sales in the test period due to lack of properly completed exemption certificates. Assuming an 8% sales tax rate and 36 months in the audit period, the auditor will project additional sales tax due of $34,560 ($12,000 x 8% = $960 X 36 months) as the result of only $960 of additional tax found due in the test period.

In addition to the business being assessed sales tax as the result of missing or incomplete exemption certificates, most states hold “responsible persons” (those under a duty to act for the business) personally liable should the business not fully pay the tax, penalty and interest due as the result of an audit. Consequently, using the example above and assuming the business does not agree or does not fully pay the tax found due on audit, the business owner will have an assessment issued personally for the $34,560 of tax due, plus penalty and interest. Personal assessments can severely affect credit ratings and will certainly cause unnecessary financial hardship.

What can one do to avoid or minimize exposure on audits when obtaining exemption certificates?
The following best practices can help minimize or eliminate exposure on audit of your business’s non-taxable sales:

• Become familiar with exemption certificates in the states where you conduct business and design an exemption certificate policy that everyone in your company must adhere to, with no exceptions. 
• Obtain a properly completed exemption certificate at the time of first sale. Too often a seller is told by their customer, “I’m exempt, don’t charge me tax, I’ll send you an exemption certificate”, and of course the customer never sends it.  Charge sales taxes on all taxable sale transactions until you receive a properly completed exemption certificate.
• Ensure that exemption certificates are maintained for the required time period to support the non-taxable status of exempt sales. Your file may need to be retained for a long as you continue not to charge a certain customer sales tax or the period of the statute of limitations in the state(s) where you do business, whichever applies. And remember, it is not enough to simply get the certificate; you must also maintain it and make it available during an audit.
• Centralize the receipt and storage of all exemption certificates. A decentralized filing system can lead to gaps in proper internal control over exemption certificates. Decentralized certificate retention often leads to lost or incomplete certificates. Don’t spread the responsibility throughout your business. Costly errors often occur when exemption certificates are obtained by salespeople, store managers, store clerks, etc. who may not be properly trained to identify what is a properly completed certificate or the correct certificate to obtain.
• In businesses where there are many exemption certificates on file, a good idea is to maintain certificates electronically. Specialized software is available which can reduce audit exposure and increase productivity by centralizing exemption certificate management.

Whether you sell taxable products or services and don’t collect sales tax, or you purchase items without paying sales tax, you must know the sales and use tax consequences of your activities in each state you do business in. Be sure to obtain exemption in states where nexus has been established, then focus on the type of exemption being claimed to insure the correct exemption certificate is obtained. If you have any questions, visit our website at www.GRRCPAS.com.

Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 314
G. R. Reid Wealth Management Services, LLC  

Common Stock vs. Preferred Stock

Common stock and preferred stock are the two main types of stocks that are sold by companies and traded among investors on the open market. Each type gives stockholders a partial ownership in the company represented by the stock.
 
Despite some similarities, common stock and preferred stock have some significant differences, including the risk involved with ownership. It’s important to understand the strengths and weaknesses of both types of stocks before purchasing them.
 
Common Stock
Common stock is the most common type of stock that is issued by companies. It entitles shareholders to share in the company’s profits through dividends and/or capital appreciation. Common stockholders are usually given voting rights, with the number of votes directly related to the number of shares owned. Of course, the company’s board of directors can decide whether or not to pay dividends, as well as how much is paid.
 
Owners of common stock have “preemptive rights” to maintain the same proportion of ownership in the company over time. If the company circulates another offering of stock, shareholders can purchase as much stock as it takes to keep their ownership comparable.
 
Common stock has the potential for profits through capital gains. Shareholders are not assured of receiving dividend payments. Investors should consider their tolerance for investment risk before investing in common stock.
 
Preferred Stock
Preferred stock is generally considered less volatile than common stock but typically has less potential for profit. Preferred stockholders generally do not have voting rights, as common stockholders do, but they have a greater claim to the company’s assets. Preferred stock may also be “callable,” which means that the company can purchase shares back from the shareholders at any time for any reason, although usually at a favorable price.
 
Preferred stock shareholders receive their dividends before common stockholders receive theirs, and these payments tend to be higher. Shareholders of preferred stock receive fixed, regular dividend payments for a specified period of time, unlike the variable dividend payments sometimes offered to common stockholders. Of course, it’s important to remember that fixed dividends depend on the company’s ability to pay as promised. In the event that a company declares bankruptcy, preferred stockholders are paid before common stockholders. Unlike preferred stock, though, common stock has the potential to return higher yields over time through capital growth. Remember that investments seeking to achieve higher rates of return also involve a higher degree of risk.
 
Both common stock and preferred stock have their advantages. When considering which type may be suitable for you, it is important to assess your financial situation, time frame, and investment goals. The return and principal value of stocks, both common and preferred, fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost.

This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved
George Elkin and Jason Saladino are Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc.
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security.

Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com 


President Obama Signs JOBS Act Into Law
 
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups (“JOBS”) Act into law. This legislation is a product of broad bipartisan efforts in response to a decreasing number of initial public offerings (“IPO’s”). The intent of the legislation is to encourage certain private companies to raise capital by means of going public and creating jobs. The JOBS Act amends specific sections of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.

Companies that fall within specific conditions laid out by the JOBS Act are referred to as “emerging growth companies”. The term “emerging growth company” describes an issuer (an entity that develops, registers and sells securities for the purpose of financing its operations) that has annual gross revenues of less than $1 billion during its most recent fiscal year. Exemptions and provisions of the JOBS Act apply to emerging growth companies until they reach a threshold of $1 billion in revenues, the last day of the fiscal year following the fifth anniversary of the first sale of common equity securities pursuant to an effective registration statement, or the date on which the issuer has, during the previous three year period, issued more than $1 billion in non-convertible debt or is deemed to be a large accelerated filer (typically public float of $700 million or more). An issuer does not have the privilege to be an emerging growth company for purposes of the Act if its first sale of common equity securities pursuant to an effective registration statement under the Securities Act of 1933 occurred on or before December 8, 2011.

Emerging growth companies are exempt from certain disclosure requirements that are currently in place for public companies. An example of one of the most significant exceptions is the fact that an emerging growth company is required to present only two years of audited financial statements in order for its registration statement with respect to an initial public offering of its common equity securities to be effective. Furthermore, in any other registration statement to be filed with the Securities and Exchange Commission (“SEC”), an emerging growth company does not need to present selected financial data in accordance with Item 301 of Regulation S-K, for any period prior to the earliest audited period presented in connection with its initial public offering. Emerging growth companies also have an opportunity to confidentially submit a draft registration statement for SEC staff review and permissible communications during the securities offering of an emerging growth company have been expanded. Emerging growth companies may not be required to comply with any new or revised financial accounting standard until the date that a company that is not an issuer (private companies) is required to comply with such new or revised accounting standard, if the standard applies to companies that are not issuers. Such issuers also have an option to comply with executive compensation disclosure requirements similar to smaller reporting companies (registrants with a market value of outstanding voting and nonvoting common equity held by non-affiliates of less than $75 million).

Other important exceptions that emerging growth companies benefit from relate to audits of internal controls. Such companies are not required to have an audit of their internal controls performed under Section 404(b) of the Sarbanes-Oxley Act of 2002. There was no change to management's requirement to assess internal controls. Any potential future rules of the PCAOB requiring the mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor will be required to provide additional information about the audit and the financial statements of the issuer (auditor discussion and analysis) will not apply to an audit of an emerging growth company.

There are also several changes that the JOBS Act brings which also affects entities other than emerging growth companies. One of the changes is a provision that allows “crowdfunding” (Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure) whereby companies can raise equity from a large pool of small investors who may or may not be considered “accredited”. Another noteworthy provision that impacts companies is the threshold for mandatory Exchange Act registration for non-listed companies. Based on the JOBS Act, this threshold has been increased from 500 shareholders of record to 2,000 shareholders of record, provided there are less than 500 "non-accredited" investors. The Act also raises the thresholds for a non-listed bank or bank holding company to terminate its Exchange Act registration from 300 shareholders of record to 1,200 shareholders of record. The JOBS Act ensures that the prohibition against general solicitation or general advertising does not apply to private offers and sales of securities made pursuant to Rule 506 of Regulation D and Rule 144, provided that all purchasers of the securities are accredited investors. The JOBS Act increases the aggregate offering exemption amount of all securities offered and sold within the prior 12-month period in public offerings from $5 million to $50 million.

Opponents believe that the JOBS Act weakens investor protections, which will lead to more financial issues and fraud, and the reduced transparency will make it more difficult for investors and regulators to detect those issues. Additionally, they believe that the $1 billion revenue threshold for emerging growth companies is too high, as it includes the vast majority of current public companies. On the other hand, proponents of the Act believe that the relaxed regulations will help entrepreneurs more efficiently raise the public and private capital needed to put more Americans back to work. It will be interesting to see the effect of the JOBS Act on the capital raising landscape for entrepreneurial growth companies.

Accounting & Tax News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com

10 Facts About Mortgage Debt Forgiveness

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.

Here are 10 things you should know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes, to pay off credit card debt for example, do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions -- such as insolvency -- may be applicable.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
    
    
    

Accounting & Tax Services News

G.R. Reid Associates, LLP


Certified Public Accountants

631.425.1800

www.GRRCPAS.com

New York Sales and Use Tax: Reminder Issued on Start of Exemption for Clothing and Footwear Costing Less Than $110
 
On March 28, 2012, the New York Department of Taxation and Finance issued a notice reminding businesses and consumers that beginning April 1, 2012, items of clothing and footwear sold for less than $110 will be exempt from state sales and use tax (up to March 31, 2012, such items up to $55 were exempt).

The exemption is based on per item sold, and also applies to most fabric, thread, yarn, buttons, hooks, zippers, and similar items. The exemption does not apply to items of jewelry, watches and equipment, such as tool belts and hard hats, and for sport, bicycle and motorcycle helmets.

New York City, the city of Norwich and the following counties will also fully exempt eligible sales of less than $110 from local sales and use tax:

    •    Chautauqua
    •    Chenango
    •    Columbia
    •    Delaware
    •    Greene
    •    Hamilton
    •    Madison (outside the City of Oneida)
    •    Tioga  
    •    Wayne
 
For more information, see the Department of Taxation and Finance’s website at www.tax.ny.gov.

Financial & Wealth Services News

: : George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 314
G. R. Reid Wealth Management Services, LLC 

How Long Will It Take to Double My Money? 

Before making any investment decision, one of the key elements you face is working out the real rate of return on your investment. Compound interest is critical to investment growth. Whether your financial portfolio consists solely of a deposit account at your local bank or a series of highly leveraged investments, your rate of return is dramatically improved by the compounding factor.

With simple interest, interest is paid just on the principal. With compound interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest. But just how quickly does your money grow? The easiest way to work that out is by using what's known as the “Rule of 72.”1 Quite simply, the “Rule of 72” enables you to determine how long it will take for the money you've invested on a compound interest basis to double. You divide 72 by the interest rate to get the answer.
For example, if you invest $10,000 at 10 percent compound interest, then the “Rule of 72” states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The “Rule of 72” is a rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

While compound interest is a great ally to an investor, inflation is one of the greatest enemies. The “Rule of 72” can also highlight the damage that inflation can do to your money. Let’s say you decide not to invest your $10,000 but hide it under your mattress instead. Assuming an inflation rate of 4.5 percent, in 16 years your $10,000 will have lost half of its value. The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value. The “Rule of 72” is a quick and easy way to determine the value of compound interest over time. By taking the real rate of return into consideration (nominal interest less inflation), you can see how soon a particular investment will double the value of your money.

1 The Rule of 72 is a mathematical concept, and the hypothetical return illustrated is not representative of a specific investment. Also note that the principal and yield of securities will fluctuate with changes in market conditions so that the shares, when sold, may be worth more or less than their original cost.The Rule of 72 does not include adjustments for income or taxation. It assumes that interest is compounded annually. Actual results will vary.
 
This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved. George Elkin and Jason Saladino are Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security

Accounting & Tax News

G.R. Reid Associates, LLP

Certified Public Accountants 


631.425.1800   www.GRReid.com

Spring Cleaning:
Tax Records You Can Throw Away

Spring is a great time to clean out that growing mountain of financial papers and tax documents that clutters your home and office. Here's what you need to keep and what you can throw out without fearing the wrath of the IRS.

Let's start with your "safety zone," the IRS statute of limitations. This limits the number of years during which the IRS can audit your tax returns. Once that period has expired, the IRS is legally prohibited from even asking you questions about those returns.

The concept behind it is that after a period of years, records are lost or misplaced and memory isn't as accurate as we would hope. There's a need for finality. Once the statute of limitations has expired, the IRS can't go after you for additional taxes, but you can't go after the IRS for additional refunds, either.

The Three-Year Rule

For assessment of additional taxes, the statute of limitation runs generally three years from the date you file your return. If you're looking for an additional refund, the limitations period is generally the later of three years from the date you filed the original return or two years from the date you paid the tax. There are some exceptions:

If you don't report all your income and the unreported amount is more than 25% of the gross income actually shown on your return, the limitation period is six years.

If you've claimed a loss from a worthless security, the limitation period is extended to seven years.

If you file a "fraudulent" return, or don't file at all, the limitations period doesn't apply. In fact, the IRS can get you at any time.

If you're deciding what records you need or want to keep, you have to ask what your chances are of an audit. A tax audit is an IRS verification of items of income and deductions on your return. So you should keep records to support those items until the statute of limitations runs out.

Assuming that you've filed on time and paid what you should, you only have to keep your tax records for three years, but some records have to be kept longer than that.

Remember, the three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old.

Here's a checklist of the documents you should hold on to:

• Capital gains and losses.
  Your gain is reduced by your basis - your cost (including all commissions) plus, with mutual funds, any reinvested dividends and capital gains. But you may have bought that stock five years ago and you've been reinvesting those dividends and capital gains over the last decade. And don't forget those stock splits. You don't ever want to throw these records away until after you sell the securities. And then if you're audited, you'll have to prove those numbers. Therefore, you'll need to keep those records for at least three years after you file the return reporting their sales.
• Expenses on your home.
  Cost records for your house and any improvements should be kept until the home is sold. It's just good practice, even though most homeowners won't face any tax problems. That's because profit of less than $250,000 on your home ($500,000 on a joint return) isn't subject to taxes under tax legislation enacted in 1997. If the profit is more than $250,000/$500,000, or if you don't qualify for the full gain exclusion, then you're going to need those records for another three years after that return is filed. Most homeowners probably won't face that issue thanks to the 1997 tax law, but of course, it's better to be safe than sorry.
• Business records.
  Business records can become a nightmare. Non-residential real estate is now depreciated over 39 years. You could be audited on the depreciation up to three years after you file the return for the 39th year. That's a long time to hold on to receipts, but you may need to validate those numbers.
• Employment, bank, and brokerage statements. Keep all your W-2s, 1099s, brokerage, and bank statements to prove income until three years after you file. And don't even think about dumping checks, receipts, mileage logs, tax diaries, and other documentation that substantiate your expenses.
• Tax returns. Keep copies of your tax returns as well. You can't rely on the IRS to actually have a copy of your old returns. As a general rule, you should keep tax records for 6 years. The bottom line is that you've got to keep those records until they can no longer affect your tax return, plus the three-year statute of limitations.
• Social Security records. You will need to keep some records for Social Security purposes, so check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If they're wrong, you'll need your W-2 or copies of your Schedule C (if self-employed) to prove the right amount. Don't dispose of those records until after you've validated those contributions.