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What You Can Learn From Your Tax Return

Tax time may be over, but before you store your return in the attic, take a moment to review it. According to the Michigan Association of CPAs, you’ll find that you can discover a lot about your financial situation and identify changes that will improve your tax outlook before it’s time to file next year’s return.

Proper Filing Now Makes It Easier to File Later
Two kinds of “filing” are important when it comes to taxes, beginning with the filing you do to keep your records, receipts and other important documents in order so that they’re accessible and organized when tax time comes. If preparing for tax time was a hassle this year, remember that if you know where to find your paperwork, it will be less of a challenge to gather the information you need to file your return accurately and on time next year.

Are You Saving Enough for Retirement?
Your tax return will reveal whether you’ve made the most of your tax-advantaged retirement saving options. If you haven’t, it’s a good idea to change your habits. If you qualify for a regular or Roth IRA, for example, we can help you consider which choice is best for you. In addition, business owners who qualify for SEP-IRAs but aren’t making their full contribution may want to step up their savings this year. Finally, employees who aren’t contributing their full share to employer-sponsored retirement plans forgo not only tax advantages but also any matching contributions their employers might make. Filak CPA Group can explain which options are open to you and how much you can contribute.

Did You Take the Right Tax Deductions and Credits?
Many people are aware of the deductions for state taxes or mortgage interest paid and they may be familiar with popular tax credits, such as the Hope and Lifetime Learning Credits for education expenses. Based on your situation, you may also qualify for other deductions and credits that can lower the taxes you pay by hundreds or thousands of dollars. Take the time to review your 2011 tax return with us to determine whether some smart tax planning can help you qualify for a greater range of deductions or credits this year. Speaking of deductions, if you’re coming to the end of your mortgage loan and your mortgage deduction isn’t as big as it used to be, it may be time to consider pumping up your monthly payments so you can get rid of your mortgage sooner, leaving you with more money for a child’s college tuition, retirement or some other goal. Once again, Filak CPA Group can provide advice.

What’s the Best Use of Your Refund?
If you qualify for a tax refund, the Internal Revenue Service allows you the option of depositing it directly into up to three different savings or checking accounts that you select (you can, of course, also choose to receive your refund in a check). For more information, go to CPAs recommend putting your refund straight into a savings or retirement account so that you can begin to earn interest on it immediately. If you deposit the money into a checking account, it could end up being spent on daily extravagances and disappear before you know it. Another smart choice would be to use your refund dollars to pay off outstanding debt, beginning with high-interest credit cards. That will help you avoid significant outlays on future interest charges on those balances.

We Can Help
Not sure how to identify all the lessons you can learn from your tax return? Remember that we can help, after all that is what we are here for! Turn to us for expert advice on all your financial questions.

Copyright 2012 The American Institute of Certified Public Accountants.

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Record Retention Guide

Clients are always calling our office asking how long we recommend they keep their financial records. Keeping good personal and business records is helpful for many reasons besides just taxes, such as when trying to obtain a new loan, for medical reasons or just for being organized. So today after Jim spoke to another client about how long they should keep certain records, we decided we should offer some advice on here for your convenience. As you read through the information below please note that while the IRS does not require you to keep tax records forever, there will be other reasons you’ll want to retain some documents indefinitely.


Accident Reports & Claims – 6 Years
Alimony, Custody, Prenuptial Agreements – Permanently
Bank Statements – 3 Years
Birth & Death Certificates – Permanently
Canceled Checks – 3 Years
Certificates of Deposit Statements – 7 Years
Charitable Contributions – Keep with Tax Return
Employee Business Expense Report – Keep with Tax Returns
Forms 1099 Received – 7 Years
Forms W2 Received – Permanently
House Records (Mortgage & Repairs) – Permanently
Income Tax Return Record – Permanently
Insurance Policies – Keep Until Expiration
Investment Trade Authorizations – Permanently
List of Financial Assets – Permanently
Major Purchase Receipts – 7 Years
Medical Records – 7 Years
Retirement & Pension Records – Permanently
Wills & Trusts – Permanently


Accident Reports & Claims – Permanently
Accounts Payable – Ledgers & Schedules – 7 Years
Accounts Receivable – Ledgers & Schedules – 7 Years
Audit Reports from CPA/Accountant – Permanently
Bank Reconciliations – 7 Years
Capital Stock & Bond Records – Permanently
Cash Books – Permanently
Checks & Cancelled Checks – Permanently
Contracts & Leases – 7 Years (After Expired)
Deeds, Mortgages, Bills of Sale – Permanently
Depreciation Schedules – 7 Years
Employee Time Cards & Expense Reports – 7 Years (After Termination)
Financial Statements – Permanently
Insurance Policies – 7 Years (After Expired)
Inventory Records – 7 Years
Invoices – 7 Years
Patent/Trademark Paperwork – Permanently
Personnel Records – Permanently
Tax Returns & Worksheets – Permanently
*DISCLAIMER – The suggested periods are just suggestions; they have no legal authority and are simply guidelines for your use in organizing and retaining your records.

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Identity Theft & Fraudulent Tax Returns

This past tax season we received many phone calls from clients complaining or concerned about the long length of time it took for them to receive their refunds. The delays in refunds were because of the new steps the IRS took this year to weed out fraudulent refund claims. Counterfeit tax returns occur when a person filing a tax return using a stolen name and social security number of a valid taxpayer or that of a dependent and then claiming that person as a dependent on their return. Typically they will file the returns early in the tax season before the IRS has even received or processed tax documents such as W-2’s or 1099’s; so when the real taxpayer attempts to file their return later in the season they are notified that they are trying to file a duplicate return.

This was where e-filing speed up this process for a few of our own clients this year. When you e-file you receive the notification within a day or so; whereas if you paper file you have to wait for the IRS to receive and manually process your return, then also wait for them to mail you a notification. All electronic tax returns submitted to the IRS are tracked by the IP (Internet Protocol) address, date, and time of the computer that submits the return.

There is also another form of ID theft that the IRS is warning about, this theft occurs when a person uses another taxpayer’s Social Security number when they are hired for work. Believe it or not there is a black market for valid Social Security numbers that theft’s and illegal aliens use frequently for employment, their wages then being reported under another taxpayer’s SSN. In this case usually the name and the Social Security number do not match, but it takes the IRS a year or more to notify employers of the error and by then the employee is gone. With this form of ID theft it takes a much longer time for the taxpayer to find out their SSN was even being used because typically they won’t be aware of it until they receive a notice from the IRS inquiring why they did not include all the earnings from a prior year.

This type of ID theft, known as employment theft, can be much more difficult for taxpayers to resolve with the IRS than a fraudulent tax return because it is the burden of the taxpayer to prove the wages were not theirs, and there is almost always the presumption that information obtained from W-2’s and 1099’s is correct, even if some of the information does not match up.

Most people think of identity theft as a stolen credit card or bank account, but many don’t realize that tax identity theft has been increasing in recent years becoming a billion dollar business. The IRS reported tax identity theft as No. 1 on its annual list of tax scams, and has been working to address problems within the tax reporting process to stop thieves from continuing to exploit taxpayers. The IRS is currently testing a barcode system to identify taxpayers in IRS correspondences as well as they have stopped placing full Social Security numbers on some of the notices they mail.

If you think you’ve been the victim of tax identity theft please call our office immediately so that we may begin to take action in resolving the issue.

Sources: – IR-2012-13, Jan. 31, 2012 | Identity Theft on the Rise, Jun. 22, 2012 | “Identity Theft & Fraudulent Tax Returns” By: Wray Rives, CPA, Jun. 11, 2012

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Common Itemized Deductions

A standard deduction is a fixed amount of tax deductions from income that a taxpayer may choose to make without having to itemize them. (Standard Amounts = Single $5,700; Married Filing Jointly $11,400; Head of Household $8,400; Married Filing Separately $5,700; Qualifying Widow(er) $11,400) If you itemize, you can deduct a part of your medical and dental expenses and un- reimbursed employee business expenses, and amounts you paid for certain taxes, interest, contributions, and miscellaneous expenses. You can also deduct certain casualty and theft losses.

Below is a more detailed list:

Common Itemized Deductions

Casualty and Theft Losses (Unreimbursed)
Charitable Contributions – Cash, property, donated clothing or household items and appreciated long term assets.
Employee Business Expenses (Unreimbursed)*
Gambling Losses
Health Insurance Costs & Medical Expenses (See Form 1040 and 1040A Instructions for Complete List) Amount is deductible after insurance reimbursements:
o Alcohol or drug abuse treatment§

o Annual physical

o Crutches, canes and orthopedic shoes§

o Long-term care insurance

o Medical transportation§

o Orthodontia

o Prescription eyeglasses, contact lenses and hearing aids§

Income tax preparation software and fees*
Investment Expenses*
Job Search Expenses*
Mileage & Expenses Associated with Volunteer Work
Mortgage Interest (Including Equity Loan Interest)
Points Paid for a Mortgage/Refinancing
Professional Investment Advisory Fees*
Taxes – State/Local Income and Personal Property

§ Deductible to the extent the total of all medical and dental expenses exceeds 7.5% of adjusted gross income.

*Deductible as miscellaneous itemized deductions to the extent the total exceeds 2% of adjusted gross income.

List Copyright ©2011 American Institute of CPAs

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5 Financial Tips for Single People

Almost half of all adult Americans—or nearly 100 million people—either have never been married or are divorced or widowed. Many of these people incorrectly decide that financial planning is something that only married people do, but it’s always advisable to make sound financial decisions that will pay off now and in the future.

The Michigan Association of CPAs offers these tips.

Don’t Fail to Plan
Many married couples own homes, have retirement plans and set aside a bit each month in savings. Single people often make the mistake of assuming that none of those goals apply to them. In fact, home ownership can be a good investment and saving for retirement and other objectives are always smart steps. Don’t let your single status stand in the way of building a strong financial base.

Secure Your Safety Net
Losing your job or being unable to work due to illness can be particularly tough on single people because they don’t have spouses to share the financial burden if their income drops or disappears. That means it’s particularly important to have a financial cushion—typically up to six months’ salary—to cover your needs in case your income stream stops. In addition, consider buying disability insurance that will replace your income if you are incapacitated. Find out first whether your employer offers it, how much of your salary it will replace and how long it will last so that you know whether you’ll need to supplement that coverage. While disability insurance can be a good investment, life insurance may not be, unless you have children or an older relative or someone else who is financially dependent on you. Consult with us for more advice on your insurance needs.

Start Your Retirement Nest Egg
Being single can offer a great deal of independence, but it also means that you must be self-reliant. That will be particularly important in retirement, when you won’t be able to count on pooling your pension or IRA proceeds with a spouse. Make savings a habit now and you will be pleasantly surprised to see how much you’ve accumulated in only 10 years, let alone 30 or more. If your employer matches your contributions to a company pension plan, be sure to take advantage of the offer since it can significantly expand your nest egg.

Make Plans for an Emergency
A financial safety net can help ensure that you have the money you need if you become ill or incapacitated, but who will take care of you in this situation? Consider giving a trusted loved one or adviser power of attorney to make decisions for you if you’re unable to do so; everyone over 21 years of age should complete a Health Care Proxy. Many older people consider long-term-care insurance, but this choice is a complicated one that may not be advisable in all situations, so it’s a good idea to discuss it with us. Since this insurance is generally expensive, find out first whether you are covered under an employer’s long-term-care plan. Look also at any policy’s limitations, benefits qualification requirements and what kinds of facilities or care are covered to ensure the policy is right for you.

Safeguard Your Legacy
If you die without a will, your estate will be distributed according to the intestate succession laws, which vary with each state. Those who inherit will generally include spouses, registered domestic partners and blood relatives. No one else typically has a claim to the estate. As a result, if you’d like your assets to go to a particular relative, a long-term partner, close friend or your favorite charity, you will need to have it in writing. If you have children, anticipating their financial needs in the event of your death should of course be a critical part of your estate planning.

Turn to Your Local CPA
Have more questions about financial considerations for single people, or any other financial concern? We can help. Filak CPA Group can provide the insights or advice you need to make smart decisions.

Copyright 2012 The American Institute of Certified Public Accountants.