The IRS has provided interim guidance on the deductions for qualified tips and qualified overtime compensation under the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). For tax year 2025, employers and other payors are not required to separately account for cash tips or qualified overtime compensation on Forms W-2, 1099-NEC, or 1099-MISC furnished to individual taxpayers.

The IRS provided guidance on changes relating to health savings accounts (HSAs) under the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21). These changes generally expand the availability of HSAs under Code Sec. 223.

The IRS provided guidance on changes relating to health savings accounts (HSAs) under the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21). These changes generally expand the availability of HSAs under Code Sec. 223.

Background

To access HSAs, individual taxpayers (1) need to be covered under a high-deductible health plan (HDHP) and (2) should not have other disqualifying health coverage. The minimum annual deductible for an HDHP in 2025 is $1,650 for self-only coverage and $3,300 for family coverage. The out-of-pocket maximum for TY 2025 is $8,300 for self-only coverage and $16,600 for family coverage.

OBBBA Changes

The OBBA made a few key changes to HDHPs and, by extension, HSAs. First, it made permanent a safe harbor for HDHPs that have no deductible for telehealth and other remote care services. The OBBBA permanent extension applies retroactively after December 31, 2024.

Second, the term HDHP now includes any plan under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) that is available as individual coverage through an exchange, including bronze and catastrophic plans. Before the OBBBA was enacted, many bronze plans did not qualify as HDHPs because the plans’ out-of-pocket maximum exceeded the statutory limits for HDHPs or because they provided benefits that were not preventive care without a deductible. Similarly, catastrophic plans could not be HDHPs because they were required to provide three primary care visits before the minimum deductible was satisfied and to have an out-of-pocket maximum that exceeded the statutory limits for HDHPs. This provision amending the definition of an HDHP applies for months after December 31, 2025.

Finally, direct primary care service arrangements (DPCSA) under Code Sec. 223(c)(1)(E)(ii) are no longer treated as a health plan for purposes of determining HSA eligibility and enrollment, and enrolling in a DPCSA will not cause a taxpayer to fail eligibility to contribute to an HSA. These DPCSAs changes would apply after December 31, 2025.

Q&As

The IRS answered several common questions from the public regarding these three provisions with regards to administration and eligibility.

Notice 2026-5

IR 2025-119

The IRS has answered initial questions regarding Trump accounts, which it intends to address in forthcoming proposed regulations. The guidance addresses general questions relating to the establishment of the accounts, contributions to the accounts, and distributions from the accounts under Code Secs. 128, 530A, and 6434. Comments, specifically on issues identified in the notice, should be submitted in writing on or before February 20, 2026, by mail or electronically.

The IRS has answered initial questions regarding Trump accounts, which it intends to address in forthcoming proposed regulations. The guidance addresses general questions relating to the establishment of the accounts, contributions to the accounts, and distributions from the accounts under Code Secs. 128, 530A, and 6434. Comments, specifically on issues identified in the notice, should be submitted in writing on or before February 20, 2026, by mail or electronically.

Establishment of the Accounts

An account may be established for the benefit of an eligible individual by making an election on Form 4547, Trump Account Election(s), or through an online tool or application on trumpaccounts.gov. A Trump account may be created at the same time that an election is made to receive a pilot program contribution. A Trump account is a traditional IRA under Code Sec. 408(a).

A rollover Trump account can only be established after the initial Trump account is created and during the growth period of the account, which is the period that ends before January 1 of the calendar year in which the account beneficiary attains age 18. A rollover account must first be funded by a qualified rollover contribution before receiving any other contribution. Additional rules regarding the choice of trustee, rollover accounts, and the written government instrument requirements are discussed in section III.A of the notice.

Pilot Program and Contributions

The election to receive a pilot program contribution is made on Form 4547 or through the online tool, once available. Pilot program contributions will be deposited into the Trump account of an eligible child no earlier than July 4, 2026.

Trustees of Trump accounts must maintain procedures to prevent contributions from exceeding the annual limit of Code Sec. 530A(c)(2)(A). Trustees are required to collect and report the amount and sources of contributions. Contributions may be made to a Trump account and to an individual retirement arrangement for the same individual during the growth period in accordance with the rules of Code Secs. 408 and 530A(c)(2).

Qualified general contributions will be transferred by the Treasury Department or its agent to the trustee of a Trump account pursuant to a general funding contribution. More information on how and where permitted entities will make an application to make a general funding contribution will be provided before the application process opens.

An employer can exclude up to $2,500 from the gross income of an employee for a contribution made by the employer to a Trump account contribution program. The annual limit is per employee, not per dependent. A Trump account contribution may be made by salary reduction under a Code Sec. 125 cafeteria plan if the contribution is made to the Trump account of the employee's dependent and not if the contribution is made to the Trump account of the employee.

Eligible Investments

The terms "mutual fund" and "exchange traded fund" are explained, with additional comments requested on their definitions. The tracking of returns of an index and leverage for purposes of Trump accounts are also described. A mutual fund or exchange traded fund will meet the requirements of having annual fees and expenses of no more than 0.1% of the balance of the investment fund if the sum of its annual fees and expenses is less than 0.1% of the value of the fund's net assets. Additional questions regarding eligible investments are discussed in section III.D of the notice.

Distributions

Only permitted distributions, which are qualified rollover contributions or qualified ABLE rollover contributions, excess contributions, or distributions upon the death of an account beneficiary, are allowed during the growth period. Hardship distributions during the growth period are not allowed. If an account beneficiary dies after the growth period, the rules that apply to other individual retirement accounts after the death of the account owner apply. If the Trump account beneficiary dies during the growth period, the account ceases to be a Trump account and an IRA as of the date of death.

Reporting and Coordination with IRA Rules

Annual reporting by the Trump account trustee is required. Forms and instructions will be issued in the future. After the growth period, distributions from Trump accounts are governed by the IRA distribution rules of Code Sec. 408(d).

Notice 2025-68

IR 2025-117

The IRS intends to issue proposed regulations to implement Code Sec. 25F, as added by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). Code Sec. 25F allows a credit for an individual taxpayer's qualified contribution to a scholarship granting organization (SGO) providing qualified elementary and secondary scholarships.

The IRS intends to issue proposed regulations to implement Code Sec. 25F, as added by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). Code Sec. 25F allows a credit for an individual taxpayer's qualified contribution to a scholarship granting organization (SGO) providing qualified elementary and secondary scholarships.

Tax Credit

Beginning January 1, 2027, individual taxpayers may claim a nonrefundable federal tax credit for cash contributions to SGOs. Taxpayers must be citizens or residents of the United States. The credit allowed to any taxpayer is limited to $1,700. The credit is reduced by the amount allowed as a credit on any state tax return. Additionally, to prevent a double benefit, no deduction is allowed under Code Sec. 170 for any amount taken into account as a qualified contribution for purposes of the Code Sec. 25F credit.

SGO Requirements

An organization can qualify as an SGO after satisfying conditions that include (1) being a Code Sec. 501(c)(3) organization that is exempt from tax under Code Sec. 501(a) and not a private foundation; (2) maintaining one or more separate accounts exclusively for qualified contributions; (3) appearing on the list submitted for the applicable covered state under Code Sec. 25F(g); and (4) providing scholarships to 10 or more students who do not all attend the same school, as well as meeting certain other requirements.

Request for Comments

The forthcoming proposed regulations describe the certification process currently envisioned by the Treasury Department and the IRS for covered states to elect to participate under Code Sec. 25F . The IRS requests comments on these matters before December 26, 2025, through the Federal e-Rulemaking portal (indicate “IRS-2025-0466”). Paper submissions should be sent to: Internal Revenue Service, CC:PA:01:PR (Notice 2025-70), Room 5503, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Notice 2025-70

IR-2025-115

The IRS has disclosed the first set of certifications for the qualifying advanced energy project credit under Code Sec. 48C(e).

The IRS has disclosed the first set of certifications for the qualifying advanced energy project credit under Code Sec. 48C(e) for the period beginning:

• March 29, 2024, through September 30, 2025, resulting from the Round 1 allocation; and
• January 10, 2025, through September 30, 2025, resulting from the Round 2 allocation.

The Service also disclosed the identities of taxpayers and amounts of the Code Sec. 48C credits allocated to said taxpayers.

Background

Notice 2023-18, I.R.B. 2023-10, established a program to allocate $10 billion of credits for qualified investments in eligible qualifying advanced energy projects under Code Sec. 48C(e)(1). Code Sec. 48C(e)(4)(A) provides a base credit rate of 6 percent of the qualified investment. In cases where projects satisfy Code Secs. 48C(e)(5)(A) and (6), the Service would provide an alternative rate of 30 percent of the qualified investment.

Certification

Each applicant for certification has two years from the date of acceptance of the Code Sec. 48C(e) application. During this time, the applicant needs to submit evidence that the requirements of the certification have been met. The IRS will publish additional notices annually for certifications issued during each successive 12-month period beginning on October 1, 2025 for both Round 1 and 2.

Announcement 2025-22

Announcement 2025-23

The IRS and Treasury Department have provided procedures for a state to elect to be a “covered state” to participate with the Code Sec. 25F credit program for calendar year 2027 prior to identifying any scholarship granting organizations (SGOs) in the state. Form 15714 is used by a state to make the advanced election.

The IRS and Treasury Department have provided procedures for a state to elect to be a “covered state” to participate with the Code Sec. 25F credit program for calendar year 2027 prior to identifying any scholarship granting organizations (SGOs) in the state. Form 15714 is used by a state to make the advanced election.

Background

For tax years beginning after 2026, a U.S. citizen or resident alien may claim a nonrefundable personal tax credit of up to $1,700 for qualified contributions made to a scholarship granting organization (SGO). A qualified contribution is a charitable contribution of cash to an SGO that uses the contribution to fund scholarship for eligible K-12 students.

In order for a contribution made by a taxpayer to an SGO in a state (or the District of Columbia) to be a qualified contribution eligible for the credit, the state must elect participate in the credit program and must identify by January 1 of each calendar year a list of qualified SGOs in the state.

Advanced Election for 2027

A state may make an advanced election using Form 15714 to be a covered state for the Code Sec. 25F credit for the 2027. The form may be submitted any time after December 31, 2026, and before the day before the final date on which the State is permitted to submit the State SGO list (as will be specified in future guidance).

The advance election will allow a state to inform potential SGOs of the state’s participation in the credit before submitting a full SGO limit to the IRS. Any SGO list submitted with Form 15714 will not be processed by the IRS and the state will need to resubmit the list as specified in future guidance. Once a state’s advance election has been made on Form 15714 for calendar year 2027, the only subsequent submission the IRS will accept is the official submission of the state’s SGO list for the calendar year.

Rev. Proc. 2026-6

IR 2025-121

The IRS has formally withdrawn two proposed regulations that would have clarified how married individuals may obtain relief from joint and several tax liability. The withdrawal affects taxpayers seeking protection under Code Sec. 6015 and relief from federal income tax obligations tied to State community property laws under Code Sec. 66.

The IRS has formally withdrawn two proposed regulations that would have clarified how married individuals may obtain relief from joint and several tax liability. The withdrawal affects taxpayers seeking protection under Code Sec. 6015 and relief from federal income tax obligations tied to State community property laws under Code Sec. 66.

The two notices of proposed rulemaking—originally issued on August 13, 2013 (78 FR 49242), and November 20, 2015 (80 FR 72649)—offered procedural guidance for requesting equitable, innocent spouse, or separation of liability relief. These proposals also reflected statutory amendments introduced by the Tax Relief and Health Care Act of 2006 and evolving jurisprudence. The Treasury Department and the IRS decided to halt progress on these rules due to the passage of time, the scope of public comments, and resource prioritization.

While the agency acknowledged the regulatory need in this area, it cited the volume and breadth of feedback as grounds for reassessment. The IRS clarified that any future rules addressing these issues would require new proposals and another round of public comment, in line with current statutory frameworks and legal developments.

Importantly, this withdrawal does not prevent the issuance of new regulations on joint and several liability relief. Nor does it alter existing statutory or regulatory obligations in place under current law. The IRS retains authority under 26 U.S.C. 7805 to revisit and re-propose rules as necessary.

The withdrawal was announced by the IRS and Treasury on December 15, 2025, and was signed by Frank J. Bisignano, Chief Executive Officer. Tax professionals and affected individuals should continue to rely on existing law and procedures when seeking relief under Code Secs. 6015 and 66.

Proposed Regulations, NPRM REG-132251-11; REG-134219-08

The American Institute of CPAs has voiced its opposition to the Internal Revenue Service’s proposal to combine the Office of Personal Responsibility and the Return Preparer Office

The American Institute of CPAs has voiced its opposition to the Internal Revenue Service’s proposal to combine the Office of Personal Responsibility and the Return Preparer Office.

“The AICPA has an extensive and resolute history of steadfastly supporting initiatives that would enhance compliance, elevate ethical conduct, and protect taxpayer confidence in our tax system,” the organization said in a November 14, 2025, letter to the directors of the two offices. “The proposed combination of OPR and RPO contravenes those principles.” A copy of this and other AICPA 2025 tax policy and advocacy comment letters can be found here.

AICPA said it “strongly opposes any efforts to combine OPR and RPO because it would inappropriately consolidate credentialed and uncredentialed return preparers under OPR, create potential conflicts of interest, and divert resources from the primary role of OPR.”

It added that the merger “would sow confusion among taxpayers trying to understand the differing qualifications and practice rights of preparers, which would harm taxpayers and erode taxpayer confidence in our tax system.”

AICPA noted that OPR “has the exclusive delegated authority to interpret and enforce the regulations in Treasury Department Circular 230 (Circular 230), which governs tax practitioners interacting with the tax administration system,” while RPO “administers the Preparer Tax Identification Number (PTIN) program, manages the enrolled agent practitioner program, encourages enrollment in the Annual Filing Season Program (AFSP), and processes some complaints against return preparers.”

“These two offices perform dissimilar government functions, oversee different types of preparers, and, therefore, should remain separate to avoid potential conflicts of interest,” AICPA said in the letter.

AICPA argued that the combination would divert resources away from the primary role of OPR and could undermine the credibility of OPR’s enforcement objective.

“Under a combined OPR unit, unscrupulous and incompetent preparers could readily misrepresent that they are subject to ethical obligations overseen by the ‘Office of Professional Responsibility,’ which would give such preparers a foothold to abuse taxpayers and undermine public trust and accountability in the tax profession,” AICPA stated in the letter.

By Gregory Twachtman, Washington News Editor

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to give former employees, spouses and children the opportunity to continue their group health coverage for 18 months and sometimes longer.p>

Business owners know that when employees leave they may be entitled to temporarily continue health coverage at group rates. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to give former employees, spouses and children the opportunity to continue their group health coverage for 18 months and sometimes longer. The American Recovery and Reinvestment Tax Act of 2009 (2009 Recovery Act) made a significant, but temporary, change for COBRA coverage.

Changes for 2009

Under the 2009 Recovery Act, eligible individuals who have been involuntarily separate from work between September 1, 2008 and January 1, 2010 can elect to pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the employer or other coverage provider through a new credit. This special treatment applies only to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months.

Employers will be required to pay the remaining 65 percent. However, the employer will be reimbursed by crediting those amounts against income tax withholding and payroll taxes it is otherwise required to remit to the IRS. Income and other limits on COBRA coverage continue to apply. Employers can claim the credit on revised Form 941, Employer's Quarterly Federal Tax Return. The COBRA credit is claimed on Line 12a of revised Form 941. Filers also must report the number of individuals provided COBRA premium assistance on Line 12b.

Triggering events

COBRA coverage is triggered by specific events. They are:

--Termination of employment;

--Reduction in hours worked;

--Death of an employee;

--Divorce or legal separation;

--Losing status as a dependent.

Sometimes, it is the responsibility of the employer to notify the health care plan when a triggering event occurs. This is the case when an employee terminates his or her employment, work hours are reduced, the employee dies, or he or she enrolls in Medicare.

Other times, the employee, or a family member, must notify the health care plan of a change. When an employee divorces or becomes legally separated from his or her spouse, he or she must inform the plan. If a dependent is no longer eligible for group health coverage, the employee must notify the plan.

Timing and content

Generally, employers must notify plans of triggering events within 30 days. If the employer administers its own health plan, it may have additional time. Employees have more time to notify plans about triggering events. They generally have 60 days. The rules are more complicated if the employee applies for Social Security disability.

Employees generally give notice of triggering events on special forms provided by the health plan. The new rules permit plans to require employees file certain forms but the forms must be readily available at no charge to employees or family members. Plans must also explain clearly and comprehensively how employees are to give the required notice. Failure to precisely follow the notice requirements is not always fatal, the DOL has stressed, as long as the employee satisfies the minimum rules about content.

Notice to employees

Notifications sent by plans to employees about COBRA coverage must be very specific under the new rules. The DOL requires plans to explain COBRA coverage, how to elect or decline coverage, the consequences of electing or declining coverage, and alternatives to COBRA coverage.

If an employee is ineligible for COBRA coverage, plans also must specifically explain why the employee doesn't qualify. Generally, plans must detail the reasons for ineligibility within 14 days of receiving notice of a triggering event from an employee or family member. However, if notice is late, the plan may be excused from explaining why the employee, or other individual, is not entitled to COBRA coverage.

If COBRA coverage ends prematurely, plans must notify individuals as soon as practicable. Plans must explain why coverage is ending early and the consequences of early termination of coverage.

The new rules are complex and, in many instances, very different from the old rules. Contact this office today so we can make sure you are fully compliant with the new COBRA notification rules.

A taxpayer who may have misplaced or lost a copy of his tax return that was already filed with the IRS or whose copy may have been destroyed in a fire, flood, or other disaster may need information contained on that return in order to complete his or her return for the current year. In addition, an individual may be required by a governmental agency or other entity, such as a mortgage lender or the Small Business Administration, to supply a copy of his or a related party's tax return.

A taxpayer who may have misplaced or lost a copy of his tax return that was already filed with the IRS or whose copy may have been destroyed in a fire, flood, or other disaster may need information contained on that return in order to complete his or her return for the current year. In addition, an individual may be required by a governmental agency or other entity, such as a mortgage lender or the Small Business Administration, to supply a copy of his or a related party's tax return.

In such circumstances, you may obtain a copy of your tax return by filing Form 4506, Request for Copy or Transcript of Tax Form, along with the applicable fee, to the IRS Service Center where the return was filed. Also, tax account information based on the return may be obtained free of charge from IRS Taxpayer Service Offices. You may also request a transcript that will show most lines from the original return, including accompanying forms and schedules.

Fees

There is no charge to request a tax return transcript of the Form 1040 series filed during the current calendar year and the three preceding calendar years. For other requests, a fee of $23.00 per tax period requested must be paid in order to obtain copies of a return. Taxpayers seeking tax account information (such as adjusted gross income, amount of tax, or amount of refund) should contact their local IRS Taxpayer Service Office, which will provide the account information free of charge.

Timing of requests

A request for a copy of a return must be received by the IRS within 60 days following the date when it was signed and dated by the taxpayer. It may take up to 60 calendar days to get a copy of a tax form or Form W-2 information. If a return has been recently filed, the taxpayer must allow six weeks before requesting a copy of the return or other information. The IRS cautions that returns filed more than six years ago may not be available for making copies; tax account information, however, is generally available for these periods.

You may be able to save some time by going directly to your tax return preparer for the information. Although a return preparer may retain a copy of the taxpayer's return, however, there is no absolute requirement to do so. Preparers must retain for three years either a copy of each completed return and claim for refund or a list of the names and taxpayer identification numbers of taxpayers for whom returns or claims have been prepared.

The Electronic Federal Tax Payment System (EFTPS) allows individuals and businesses to make tax payments by telephone, personal computer or through the Internet.

The Electronic Federal Tax Payment System (EFTPS) allows individuals and businesses to make tax payments by telephone, personal computer or through the Internet.

Paperless

EFTPS is one of the most user-friendly programs developed by the IRS. EFTPS is totally paperless. Everything is done by telephone or computer. Because it's electronic, it's available 24 hours a day, seven days a week.

You make your tax payments electronically by:

• · Calling EFTPS; or

• · Using special computer software or the Internet.

Who can use EFTPS

EFTPS is available to businesses and individuals but businesses have more options.

Businesses: If your total deposits of federal taxes are more than $200,000 each year, you must use EFTPS. If not, you can still use EFTPS but you're not required to.

To calculate the $200,000 threshold, you have to include every federal tax your business pays, such as payroll, income, excise, social security, railroad retirement, and any other federal taxes.

The IRS wants businesses to use EFTPS and makes it difficult to stop using it. Once you meet the $200,000 threshold, you have to continue using EFTPS even if your annual tax deposits fall below $200,000 in the future.

Individuals: Individuals can also use EFTPS. Many of the individuals using EFTPS are making quarterly estimated tax payments but it's also available to people paying federal estate and gift taxes and installment payments.

How EFTPS works

There are two versions of EFTPS: direct and through a financial institution.

Direct: EFTPS-Direct is just what the name suggests. You access EFTPS directly - by telephone or computer - and make your tax payments. You tell EFTPS when you want to deposit your taxes and on that date EFTPS tells your bank to transfer the funds from your account to the IRS. At the same time, the IRS updates your payroll tax records to reflect the deposit.

Example. Your payroll taxes are due on the 15th. You have to contact EFTPS by 8PM at least one day before your tax due date. You either call EFTPS or log-on using special software or through the Internet. You enter your payment and EFTPS automatically debits your bank account and transfers the funds to the IRS on the date you indicate.

If you're a business, you can schedule your tax deposits up to 120 days before the due date. Individuals can schedule tax deposits up to 365 days before the due date.

Through a financial institution: You can also access EFTPS through a bank or credit union. Instead of contacting EFTPS directly and making your tax payments, your bank does it for you. Not all banks and credit unions participate in EFTPS so you have to check with your financial institution.

Only businesses can use EFTPS through a financial institution. If you're an individual and you want to use EFTPS, you have to use it directly. Also, while EFTPS-Direct is free, some financial institutions charge a fee for accessing EFTPS.

Getting started

To access EFTPS, you have to enroll. Your tax advisor can help you navigate the enrollment process and, once you're part of EFTPS, he or she can make the payments for you.

No use worrying. More than five million people every year have problems getting their refund checks so your situation is not uncommon. Nevertheless, you should be aware of the rules, and the steps to take if your refund doesn't arrive.

Average wait time

The IRS suggests that you allow for "the normal processing time" before inquiring about your refund. The IRS's "normal processing time" is approximately:

• Paper returns: 6 weeks
• E-filed returns: 3 weeks
• Amended returns: 12 weeks
• Business returns: 6 weeks

IRS website "Where's my refund?" tool

The IRS now has a tool on its website called "Where's my refund?" which generally allows you to access information about your refund 72 hours after the IRS acknowledges receipt of your e-filed return, or three to four weeks after mailing a paper return. The "Where's my refund?" tool can be accessed at www.irs.gov.

To get out information about your refund on the IRS's website, you will need to provide the following information from your return:

• Your Social Security Number (or Individual Taxpayer Identification Number);
• Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)); and
• The exact whole dollar amount of your refund.

 Start a refund trace

If you have not received your refund within 28 days from the original IRS mailing date shown on Where's My Refund?, you can start a refund trace online.

Getting a replacement check

If you or your representative contacts the IRS, the IRS will determine if your refund check has been cashed. If the original check has not been cashed, a replacement check will be issued. If it has been cashed, get ready for a long wait as the IRS processes a replacement check.

The IRS will send you a photocopy of the cashed check and endorsement with a claim form. After you send it back, the IRS will investigate. Sometimes, it takes the IRS as long as one year to complete its investigation, before it cuts you a replacement check.

A bigger problem

Another problem may come to the fore when the IRS is contacted about the refund. It might tell you that it never received your tax return in the first place. Here's where some quick action is important.

First, you are required to show that you filed your return on time. That's a situation when a post-office or express mail receipt really comes in handy. Second, get another, signed copy off to the IRS as quickly as possible to prevent additional penalties and interest in case the IRS really can prove that you didn't file in the first place.

Minimize the risks

When filing your return, you can choose to have your refund directly deposited into a bank account. If you file a paper return, you can request direct deposit by giving your bank account and routing numbers on your return. If you e-file, you could also request direct deposit. All these alternatives to receiving a paper check minimize the chances of your refund getting lost or misplaced.

If you've moved since filing your return, it's possible that the IRS sent your refund check to the wrong address. If it is returned to the IRS, a refund will not be reissued until you notify the IRS of your new address. You have to use a special IRS form.

IRS may have a reason

You may not have received your refund because the IRS believes that you aren't entitled to one. Refund claims are reviewed -usually only in a cursory manner-- by an IRS service center or district office. Odds are, however, that unless your refund is completely out of line with your income and payments, the IRS will send you a check unless it spots a mathematical error through its data-entry processing. It will only be later, if and when you are audited, that the IRS might challenge the size of your refund on its merits.

IRS liability

If the IRS sends the refund check to the wrong address, it is still liable for the refund because it has not paid "the claimant." It is also still liable for the refund if it pays the check on a forged endorsement. Direct deposit refunds that are misdirected to the wrong account through no fault of your own are treated the same as lost or stolen refund checks.

The IRS can take back refunds that were paid by mistake. In an erroneous refund action, the IRS generally has the burden of proving that the refund was a mistake. Nevertheless, although you may be in the right and eventually get your refund, it may take you up to a year to collect. One consolation: if payment of a refund takes more than 45 days, the IRS must pay interest on it.

If you are still worrying about your refund check, please give this office a call. We can track down your refund and seek to resolve any problem that the IRS may believe has developed.

You have just been notified that your tax return is going to be audited ... what now? While the best defense is always a good offense (translation: take steps to avoid an audit in the first place), in the event the IRS does come knocking on your door, here are some basic guidelines you can follow to increase the chances that you will come out of your audit unscathed.

You have just been notified that your tax return is going to be audited ... what now? While the best defense is always a good offense (translation: take steps to avoid an audit in the first place), in the event the IRS does come knocking on your door, here are some basic guidelines you can follow to increase the chances that you will come out of your audit unscathed.

Relax. It is a normal reaction upon receiving notice of an audit to panic and feel particularly singled out, however, as in most situations, panic can be counterproductive. A better course of action is to contact an experienced professional to get additional guidance as to how best to proceed to prepare for the audit as well as to get reassurance that everything will be fine.

Be professional. In the event that you have any type of communication with the IRS prior to your audit -- written or verbal, it's important that you act in a professional, business-like manner. Verbally abusing the auditor or becoming defensive is not a good way to start off your relationship with him or her.

Organization is very important. Before the audit, take the time to gather all of your documents together and consider how they will be presented. While throwing them all into a box in a haphazard fashion is certainly one way to present your documents to your auditor, this method will also be sure to raise at least one eyebrow ... and encourage him or her to dig deeper.

As you gather your data, you may need to re-create records if no longer available. This may involve calls to charities, medical offices, the DMV, etc., to obtain the written documentation required for verification of deductions claimed. Once you are confident that you have all of the necessary documentation, organize it in a binder, separated by category as shown on your return. This will allow quick and easy access to these records during the actual audit, something that the auditor will appreciate and will give him/her the impression that you are organized and thorough.

Leave the face to face to a professional. Make sure that you retain the services of a tax professional, most likely the person who prepared your return. Having a tax professional appear on your behalf for your audit is beneficial in a number of ways.

• A tax professional is emotionally detached from the return and less likely to become angry or defensive if questioned.
• A tax professional can serve as a "buffer" between you and the IRS -- indicating that he/she will need to get back to the auditor on certain issues, can buy you extra time to prepare for an issue raised you didn't consider.
• A tax professional can keep an auditor on track, making sure all inquiries are relevant to the return areas being audited.

If you disagree, appeal. If you disagree with the outcome of the audit, you still have the right to send your case to the IRS Appeals division for review. Appeals officers are usually more experienced than auditors and are more likely to negotiate with you, if necessary.

As for the "best defense is a good offense" comment? In this case, this old adage applies to how you approach the tax return preparation process throughout the year, year-in and year-out.

• Good recordkeeping is key. Maintaining complete and accurate records throughout the year reduces the chance that you will forget to provide important information to your tax preparer, which can increase your chances of audit. Good recordkeeping will also result in a more relaxed reaction to notification of an audit as most of your upfront audit work will be complete -- this is especially true if you audit pertains to a tax year several years in the past! Tax records should be retained for at least 3 years after the filing date.
• Provide ALL relevant information to your tax preparer. When your tax preparer is fully informed of all tax-related events that occurring during the year, the chances for errors or omissions on your return dramatically decrease.
• Keep a low profile. Error-free, complete tax returns that are filed in a timely manner don't have the tendency to raise any of those infamous "red flags" with the IRS. During the year, if the IRS does send you correspondence, it should be responded to immediately and fully. Don't hesitate to retain professional assistance to help you "fly under the radar".

While the odds of your tax return being audited remain very low, it does happen to even the most diligent taxpayers. If you are contacted about an examination by the IRS, take a deep breath, relax and contact the office as soon as possible for additional assistance and guidance.

How quickly could you convert your assets to cash if necessary? Do you have a quantitative way to evaluate management's effectiveness? Knowing your business' key financial ratios can provide valuable insight into the effectiveness of your operations and your ability to meet your financial obligations as well as help you chart your company's future.

How quickly could you convert your assets to cash if necessary? Do you have a quantitative way to evaluate management's effectiveness? Knowing your business' key financial ratios can provide valuable insight into the effectiveness of your operations and your ability to meet your financial obligations as well as help you chart your company's future.

Step 1: Calculate your ratios.

Acid Test: determines your company's ability to convert assets to cash to pay current obligations.

Cash & near cash

Current liabilities

Current Ratio measures your company's liquidity and ability to pay short-term debts.

Current assets

Current liabilities

Debt to Assets Ratio determines the extent to which your company is financed by debt.

Total debt

Total assets

Gross Profit Margin Rate: measures how much of each sales dollar can go for operating expenses and profit.

Gross Profit

Net Sales

Return on Assets (ROA): measures how much income is generated from your company's assets.

Net profit

Total assets

Step 2: Evaluate results.

Once you have calculated the ratios, you will need to be able to translate the numbers into results that relate to your business. Below are some examples of how you can use these ratios in your business:

Acid Test: A result of 2:0:1 means you have a two dollars' worth of easily convertible assets for each dollar of current liabilities.

Current Ratio A ratio of 2.0:1 means that the value of your current assets are twice that of what your current obligations are, a good indicator to a potential lender that your company is in sound financial condition.

Debt to Assets Ratio This ratio shows how many cents per dollar of assets are financed. An 82% ratio would indicate that your company's assets are heavily financed and may be a troubling sign to a potential lender.

Gross Profit Margin Ratio A ratio of .45:1 indicates that for every dollar of sales, your company has 45 cents to cover operating expenses and profit. This information can be used when setting pricing for your company's products and services.

Return on Assets Ratio (ROA): A ratio of .08:1 would mean that the company is bringing in 8 cents for every dollar of assets. These results can be used to determine the effectiveness of management's efforts to utilize assets.

Step 3: Compare to previous periods' results.

Take the results from the current period (e.g., this month) and deduct from the results of the previous period (e.g., last month). The result will be the net change in the ratio from one period to another. Because increases from period to period are good for one ratio (e.g., acid test) but maybe not so good for another (e.g., debt to assets ratio) it's important to analyze each ratio separately.

While changes in ratios don't always mean your company is getting off track, analyzing the cause of the changes can help uncover potential problem areas that need your attention.

There are many applications for key financial ratios to help you and your management team identify your company's strengths and weaknesses. If you would like any additional assistance with the calculation or analysis of your company's ratios, please contact the office.

While one of the most important keys to financial success of any business is its ability to properly manage its cash flow, few businesses devote adequate attention to this process. By continually monitoring your business cycle, and making some basic decisions up-front, the amount of time you spend managing this part of your business can be significantly reduced.

While one of the most important keys to financial success of any business is its ability to properly manage its cash flow, few businesses devote adequate attention to this process. By continually monitoring your business cycle, and making some basic decisions up-front, the amount of time you spend managing this part of your business can be significantly reduced.

Manage your cash before it manages you

Why do you need to manage your cash flow? Is it needed to help manage the day-to-day operations, obtain financing for a new project, or to acquire new equipment? Do you plan on presenting it to your banker to secure better financing terms or provide for future solvency? Are you seeking additional investors to help you expand into new markets? While all of these can be valid reasons for keeping on top of your cash flow situation, one of the main reasons to manage it is so it does not manage you. You should know when your business would be cash poor so you can better plan for short term operating loans. Similarly, when it has excess cash, it can be invested temporarily to maximize your return. If you do not do this, your cash flow situation will dictate when you can afford to advertise, when you can expand your business, when you can take on more sales, etc. as opposed to you making those timing decisions.

Once you have determined why cash flow management is important to your business, the next step is to get into action. In order to effectively manage your cash flow situation, you need to forecast your cash flows and once done, develop and implement a cash flow plan.

Step 1: Forecast Your Cash Flows

Forecasting your cash flow is the first step in the process of effectively managing your cash flow. How often you will need to prepare cash flow projections and what intervals to use (i.e. annually with monthly intervals or monthly with daily intervals) will depend on the nature of your business.

Be realistic. A realistic approach to forecasting your cash flows will produce more dependable and effective results. Analyze your operations to know your historical results as well as your projected assumptions. All cash flow from operations, investing activities and financing activities should be considered.

Consider your cash inflows and outflows. Your business' cash inflows would include such items as accounts receivable collection, along with unusual and nonrecurring items such as tax refunds, proceeds from a sale of equipment, etc.… Normal cash outflows include recurring items such as purchasing and accounts payable, payroll, loan payments, etc. along with nonrecurring items such as estimated tax payments, bonuses, equipment purchases and others.

Project your cash flow. Once you have determined the appropriate interval for your business (let's assume monthly), you would take the cash at the beginning of the month, add the cash inflows and subtract the cash outflows. This will give you a projected end of month cash balance. Now repeat this for the next 11 months (if your forecast was based on an annual cycle). You now have a cash flow forecast. When you study this, you may notice some months with large cash balances and other months with little, or even negative, cash balances.

Step 2: Develop a Cash Flow Plan

The goal here is to alter the forecasted cash flows into planned cash flows. By doing this, you can smooth out the peaks and valleys and turn your forecast into a manageable plan.

Invest excess cash. For those months with excess cash, you should have automatic investment alternatives set up with your financial institution. Depending on the length of time you have an excess cash situation, you can have a nightly sweep whereby your funds are invested in government bonds or repurchase agreements. Longer periods of excess cash will require more sophisticated alternatives, such as certificates of deposit. The size of the business, along with its cycle, will determine the investment alternatives to choose.

Plan for cash shortages. For the months with little or negative cash, you can first try to adjust these shortages by reviewing your collection policies to find ways to accelerate cash inflows. You can also look at your vendors' terms to consider possible ways to defer your payables. You should always err on the side of conservatism when making these changes. After this exercise, if you are still in a cash poor situation, determine sources of additional financing. You will appear more organized to lending institutions if this can be arranged before the problem arises.

By first forecasting, and then planning your cash flows, you can take advantage of many unique business opportunities, and avoid the pitfalls of unplanned cash shortages. Taking a step towards controlling your cash flow will keep you from having your cash flow take control of you.

If you have any questions about how you can better manage your business' cash flow, please contact the office for a consultation.

Keeping the family business in the family upon the death or retirement of the business owner is not as easy as one would think. In fact, almost 30% of all family businesses never successfully pass to the next generation. What many business owners do not know is that many problems can be avoided by developing a sound business succession plan in advance.

Keeping the family business in the family upon the death or retirement of the business owner is not as easy as one would think. In fact, almost 30% of all family businesses never successfully pass to the next generation. What many business owners do not know is that many problems can be avoided by developing a sound business succession plan in advance.

In the event of a business owner's demise or retirement, the absence of a good business succession plan can endanger the financial stability of his business as well as the financial security of his family. With no plan to follow, many families are forced to scramble to outsiders to provide capital and acquire management expertise.

Here are some ideas to consider when you decided to begin the process of developing your business' succession plan:

Start today. Succession planning for the family-owned business is particularly difficult because not only does the founder have to address his own mortality, but he must also address issues that are specific to the family-owned business such as sibling rivalry, marital situations, and other family interactions. For these and other reasons, succession planning is easy to put off. But do you and your family a favor by starting the process as soon as possible to ensure a smooth, stress-free transition from one generation to the next.

Look at succession as a process. In the ideal situation, management succession would not take place at any one time in response to an event such as the death, disability or retirement of the founder, but would be a gradual process implemented over several years. Successful succession planning should include the planning, selection and preparation of the next generation of managers; a transition in management responsibility; gradual decrease in the role of the previous managers; and finally discontinuation of any input by the previous managers.

Choose needs over desires. Your foremost consideration should be the needs of the business rather than the desires of family members. Determine what the goals of the business are and what individual has the leadership skills and drive to reach them. Consider bringing in competent outside advisors and/or mediators to resolve any conflicts that may arise as a result of the business decisions you must make.

Be honest. Be honest in your appraisal of each family member's strengths and weaknesses. Whomever you choose as your successor (or part of the next management team), it is critical that a plan is developed early enough so these individuals can benefit from your (and the existing management team's) experience and knowledge.

Other considerations

A business succession plan should not only address management succession, but transfer of ownership and estate planning issues as well. Buy-sell agreements, stock gifting, trusts, and wills all have their place in the succession process and should be discussed with your professional advisors for integration into the plan.

Developing a sound business succession plan is a big step towards ensuring that your successful family-owned business doesn't become just another statistic. Please contact the office for more information and a consultation regarding how you should proceed with your business' succession plan.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Nearly one-third of all new vehicles (and up to 75% of all new luxury cars) are leased rather than purchased. But the decision to lease or buy must ultimately be made on an individual level, taking into consideration each person's facts and circumstances.

Buying

Advantages.

• You own the car at the end of the loan term.
• Lower insurance premiums.
• No mileage limitations.

Disadvantages.

• Higher upfront costs.
• Higher monthly payments.
• Buyer bears risk of future value decrease.

Leasing

Advantages.

• Lower upfront costs.
• Lower monthly payments.
• Lessor assumes risk of future value decrease.
• Greater purchasing power.
• Potential additional income tax benefits.
• Ease of disposition.

Disadvantages.

• You do not own the car at the end of the lease term, although you may have the option to purchase at that time.
• Higher insurance premiums.
• Potential early lease termination charges.
• Possible additional costs for abnormal wear & tear (determined by lessor).
• Extra charges for mileage in excess of mileage specified in your lease contract.

Before you make the decision whether to lease or buy your next vehicle, it makes sense to ask yourself the following questions:

How long do I plan to keep the vehicle? If you want to keep the car or truck longer than the term of the lease, you may be better off purchasing the vehicle as purchase contracts usually result in a lower overall cost of ownership.

How much am I going to drive the vehicle? If you are an outside salesperson and you drive 30,000 miles per year, any benefits you may have gained upfront by leasing will surely be lost in the end to excess mileage charges. Most lease contracts include mileage of between 12,000-15,000 per year - any miles driven in excess of the limit are subject to some pretty hefty charges.

How expensive of a vehicle do I want? If you can really only afford monthly payments on a Honda Civic but you've got your eye on a Lexus, you may want to consider leasing. Leasing usually results in lower upfront fees in the form of lower down payments and deferred sales tax, in addition to lower monthly payments. This combination can make it easier for you to get into the car of your dreams.

If you have any questions about the tax ramifications regarding buying vs. leasing an automobile or would like some additional information when making your decision, please contact the office.

Q. I've just started my own business and am having a hard time deciding whether I should buy or lease the equipment I need before I open my doors. What are some of the things I should consider when making this decision?

Q. I've just started my own business and am having a hard time deciding whether I should buy or lease the equipment I need before I open my doors. What are some of the things I should consider when making this decision?

A. Deciding whether to buy or lease business property is just one of the many tough decisions facing the small business owner. Unfortunately, there's not a quick answer and, since every business has different fact patterns, each business owner will need to assess every type of business property separately and consider many different factors to make a decision that is right for his or her particular circumstances.

While there are advantages and disadvantages to both buying and leasing business property, the business owner should carefully consider the following questions before making a final decision either way:

How's your cash flow? If you are just starting a business, cash may be tight and a hefty down payment on a piece of equipment may bust your budget. In that case, since equipment leases rarely require down payments, leasing may be a good choice for you. One of the biggest advantages of leasing is that you generally gain the use of the asset with a much smaller initial cash expenditure than would be required if you purchased it.

How's your credit? Loans to new small businesses are hard to come by so if you're a fairly new business, leasing may be your only option outside of getting a personal loan. As a new business, you will definitely have an easier time getting a company to lease equipment to you than finding someone to extend you credit to make the purchase. However, if you have time to search for credit well in advance of needing the equipment, you may want to purchase the equipment to begin establishing a credit history for your company.

How long will you use it? A general rule of thumb is that leasing is very cost-effective for items like autos, computers and other equipment that decrease in value over time and will be used for about five years or less. On the other hand, if you are considering business property that you intend to use more than five years or that will appreciate over time, the overall cost of leasing will usually exceed the cost of buying it outright in the first place.

What's your tax situation? Don't forget that your tax return will be affected by your decision to lease or buy. If you purchase an asset, it is depreciated over its useful life. If you lease an asset, the tax treatment will depend on what type of lease is involved. There are two basic types of leases: finance and true. Finance leases are handled similarly to a purchase and work best for companies that intend to keep the property at the end of the lease. Payments on true leases, on the other hand, are deductible in full in the year paid.

The answers to each question above need to be considered not individually, but as a group, since many factors must be weighed before a decision is made. Buying or leasing equipment can have a significant effect on your tax situation and the rules related to accounting for leases are very technical. Please contact our office before you make any decisions regarding your business equipment.

The rise of paperless processing and remote access to computer systems has made increased computer security imperative. Establishing an effective password system can help keep your data secure while allowing you greater control over the access to your company's vital information.

The rise of paperless processing and remote access to computer systems has made increased computer security imperative. Establishing an effective password system can help keep your data secure while allowing you greater control over the access to your company's vital information.

Your best weapon to combat illegal access is a password system. Once it is installed, take the following steps to support it and ensure its effectiveness:

Create password guidelines. Clearly worded and easily accessible password guidelines can nip a computer security problem in the bud. Keep in mind that an outside hacker does only 15 percent of computer break-ins - 85% of such security breaches comes from inside, usually from disgruntled employees.

Create a clear access rights policy and be sure everyone knows what it is. Certain levels and certain positions will have rights to specified parts of the system. Review log-in registers to see if a change in pattern pops up. Investigate anything suspicious immediately.

Control remote access. An off-the-shelf program, such as a firewall or encryption program, will add the security you need. A firewall system will allow access only to specific programs from the outside. Unfortunately, it's often the protected information your workers need. Encryption programs use codes to "scramble" data. Although persistent hackers can crack codes, these programs can make your information relatively safe.

If you take these steps to better your company's data security, you can be certain that the investment will pay off in the end. If you have any further questions, please feel free to contact our office.

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.

What do amounts paid for new swimming pools, Lamaze classes, lunches with friends, massages, and America Online fees have in common? All of these costs have been found to be legitimate tax deductions under certain circumstances. As you gather your information for the preparation of your tax return, it may pay to take a closer look at the items you spent money on during the year.

What do amounts paid for new swimming pools, Lamaze classes, lunches with friends, massages, and America Online fees have in common? All of these costs have been found to be legitimate tax deductions under certain circumstances. As you gather your information for the preparation of your tax return, it may pay to take a closer look at the items you spent money on during the year.

Medical Expenses

Medical expenses that you pay during the tax year for yourself, your spouse, and your dependents are deductible to the extent the total exceeds 7.5% of your adjusted gross income. This limitation can be hard to reach if you claim only medical insurance premiums and the co-pay on your kid's doctors' visits. Keep these potential deductions in mind as you tally up this year's medical expenses:

To maximize your deduction, try to bunch your medical expenses into one year to exceed the 7.5% limit. For example, schedule costly elective medical and dental treatments to be performed and billed in the same tax year.

Taxes Paid

Many of the taxes that you pay such as real estate taxes for your home, state and local taxes, and auto registration fees are deductible as itemized deductions on your return. Don't forget these:

Interest Expense

Although in recent years Congress has made the tax laws regarding interest deductions more strict, much of the interest that you pay during the year is still deductible. For interest paid to be deductible, you must be legally responsible for the underlying debt and the debt must result from a valid debtor-creditor relationship. While gathering your home mortgage interest numbers, dig a little deeper to get this inf

Since personal interest paid on credit cards and other unsecured loans is not deductible, it may be wise to make that interest deductible by paying off that debt with a home-equity loan. Interest on home-equity loans of up to $100,000 is generally deductible on your return.

Miscellaneous Expenses

Miscellaneous itemized deductions such as unreimbursed employee business expenses and tax preparation fees are deductible to the extent that the total of all of these expenses is more than 2% of your adjusted gross income. Here's a few more to add to the list:

Take the time this year to evaluate all of your expenditures made last year; you may be pleasantly surprised by what you find.