Keep at Least Three Years

The following records are
commonly used to substantiate a taxpayer’s income and deductible expense items:

• Form(s) W-2
• Form(s) 1099
• Form(s) K-1
• Bank and brokerage statements
• Canceled checks or other proof of payment of
  deductible expenses

At a minimum, the above tax
records should be kept for a three-year period following the date that you file
your return (or its due date, if later).

However, the IRS’s time limit for
initiating an audit on a return where income was grossly understated, but no
fraud is discovered, is six years. Therefore, it is ideal to retain the above
documents for six years to better protect yourself in the event of an audit.

Similarly, you should keep
investment records (brokerage statements, etc.) after you liquidate any given
investment. Documentation that substantiates the gain or loss on an investment
should be kept for the length of time that corresponds with the time frame that
you retain other tax documents related to the return on which you report the
sale.

Prior Years’ Tax Returns

It is also a good idea to
maintain one or more permanent files with important legal and personal
documents, including those relating to taxes. Specifically, as a general rule,
you should retain copies of your federal and any state income-tax returns (and
any tax payments) indefinitely. For
instance, the IRS or another taxing authority could claim that you never filed
a particular year’s return. If that occurs, the IRS (or other authority) could assess
tax and penalties relating to the return in question. You will need a copy of
your return to bolster your position that you actually filed the return.

Need More Information?

Filing your returns on a timely basis
is just one aspect of properly handling your taxes. Be prepared to defend yourself
in the event of an audit by retaining your records for the appropriate time
period. Contact us if you have any further questions.

The IRS has issued the 2013
optional standard mileage rates used to calculate the deductible costs of
operating an automobile for business, charitable, medical, or job-related moving
purposes. Effective January 1, 2013, the various standard mileage rates for the
operation of a car, van, pickup, or panel truck are as follows:

• 56.5 cents per mile for each business mile
  driven (up from 55.5 cents in 2012). This rate is based on an annual study of
  the fixed and variable costs of operating an automobile.
• 24 cents per mile driven for medical or moving
  purposes (up from 23 cents in 2012) — based on variable costs.
• 14 cents per mile driven in service of a
  charitable organization (unchanged from 2012).

Taxpayers have the option of
calculating the actual costs of using their vehicles rather than using the
standard mileage rates. Certain expenses — such as eligible parking fees — may
be deducted separately from the standard rate.

However, a taxpayer may not
use the business standard mileage rate for a vehicle after claiming a
depreciation deduction under the Modified Accelerated Cost Recovery System or
after electing to claim a tax law Section 179 expensing deduction for that
vehicle. Furthermore, the business standard mileage rate cannot be used for
more than four vehicles simultaneously.

Contact us for more information about claiming
deductions for vehicles used in your business or for charitable, medical, or
moving purposes. We’re here to help.

On January 2, 2013, the President signed into
law the American Taxpayer Relief Act of 2012 (“ATRA”) that prevents broad
federal tax increases and spending cuts from going into effect beginning
January 1, 2013.  Thus, at least for the
time being, the so-called “fiscal cliff” has been avoided.

The new law retains many of the favorable tax
measures that were slated to expire at the end of 2012. However, ATRA increases
federal income taxes for certain higher income taxpayers, as well as federal
transfer taxes (estate taxes, for example) for high net worth individuals. Here
is a brief summary of some of the new law’s major provisions.

Individual
Income Tax Rates. Generally,
rates remain at 10%, 15%, 25%, 33%, and 35%, instead of increasing to 15%, 28%,
31%, 36%, and 39.6%, as would have been the case absent enactment of the new
law. Starting in 2013, however, higher-income taxpayers (single filers with
taxable income of more than $400,000; joint filers with income of more than
$450,000; and heads of households with income of more than $425,000) will pay a
top marginal tax rate of 39.6% (as opposed to 35%).

Capital
Gains and Dividend Tax Rates.
For tax years beginning after 2012, the top rate for capital gains and
dividends will permanently rise to 20% (up from 15%) for higher income
taxpayers. Coupled with the 3.8% surtax on investment-type income, the top
overall rate will be 23.8%. Taxpayers whose highest ordinary income-tax bracket
is less than 25% will generally be taxed at a 0% rate. Individuals who are subject
to a 25% ordinary tax bracket or higher — but who fall below the top 39.6%
bracket — will continue to be taxed at the 15% rate for dividends and capital
gains.

Alternative
Minimum Tax. Higher AMT
exemption amounts (the “AMT patch”) that expired after 2011 are reinstated for
2012 and have been made permanent. For 2012, the AMT exemption amounts are
$50,600 for unmarried individuals, and $78,750 for joint filers, to be indexed
for inflation after 2012. Absent the legislation, AMT exemption amounts would
have been $33,750 and $45,000.

Limit
on Itemized Deductions. The
limitation on itemized deductions, which expired after 2010, is reinstated for
higher income individuals ($300,000 of adjusted gross income for joint filers;
$250,000 of AGI for singles). The maximum itemized-deduction reduction may not
exceed 80%.

Reduction
of Personal Exemptions. ATRA
revives the personal exemption phase-out rules. Generally, under the phase-out,
the total value of exemptions that may be claimed by a taxpayer is reduced by
2% for each $2,500 by which the taxpayer’s AGI exceeds the applicable threshold
amount. The reduction starts at the same income levels as the phase-out of
itemized deductions explained above.

Other
Individual Extenders. Many
individual tax provisions — such as the deduction for teachers’ classroom
expenses and the ability of individuals age 70½ or older to take up to $100,000
a year of tax-free distributions from Individual Retirement Accounts and donate
them to public charities — have been retroactively extended through 2013.
Furthermore, a five-year extension applies to The American Opportunity Tax
Credit, which generally permits eligible taxpayers to claim a credit equal to
100% of the first $2,000 of qualified college tuition expenses, and the earned income
tax credit. And the new law extends the $1,000 child tax credit permanently.

Estate
and Other Transfer Taxes.
The top gift, estate, and generation skipping transfer tax rate is increased
from 35% to 40%. There is a $5 million exemption (subject to an inflation
adjustment) for individuals dying and gifts made after 2012.

Social
Security Taxes. What wasn’t
included in the law is notable. For example, the two percentage-point reduction
in the employee portion of the Social Security payroll tax was allowed to
expire after 2012.

Section
179 Small Business Expensing.
ATRA increases, retroactive to tax years beginning in 2012, the maximum
expensing amount from $139,000 to $500,000. For tax years beginning in 2013,
the new law increases the maximum expensing amount from $25,000 to $500,000.
The investment-based phase-out amount is also increased under the Act, to
$2,000,000, for tax years beginning in 2012 or 2013.

Bonus
Depreciation. ATRA generally
extends the 50% first year bonus depreciation by applying it to qualified
property acquired and placed in service before January 1, 2014.

Business
Extenders. Certain tax
credits for businesses, such as the Research Credit and the Domestic Production
Activities deduction, are generally extended through the end of 2013.

Contact us if you have any specific questions
regarding the American Taxpayer Relief Act and how it may affect you.

The IRS has announced many cost-of-living
adjustments (COLAs) that apply to retirement benefit plan limitations. Below
are selected COLAs for 2013, compared to their 2012 levels.

• Limit on
  elective deferrals to 401(k), 403(b), and 457 plans — $17,500, up from $17,000
• Traditional
  and Roth IRA contribution limit — $5,500, up from $5,000
• Maximum
  SIMPLE contributions — $12,000, up from $11,500
• Limit on
  annual additions to defined contribution plans — $51,000, up from $50,000
• Maximum
  annual benefit accrued under a defined benefit plan — $205,000, up from
  $200,000
• Compensation
  limit for qualified plan purposes — $255,000, up from $250,000
• Traditional
  IRA deduction – begins to phase out at Modified Adjusted Gross Income (MAGI) of
  $95,000 for a
  
  married couple filing jointly, up from $92,000 (single or head of household
  filers: $59,000, up from $58,000)
• MAGI
  phase-out range for Roth IRA contributions — $178,000 to $188,000, up from
  $173,000 to $183,000 (married filing jointly); singles and heads of households:
  $112,000 to $127,000, up from $110,000 to $125,000
• MAGI
  limit for the Retirement Saver’s credit — $59,000 for married couples filing
  jointly, up from $57,500 ($29,500 for singles and heads of households, up from
  $28,750)

Limits on catch-up contributions remain the
same for 2013: for IRAs, the limit is $1,000; for 401(k) and 403(b) plans,
$5,500; and for SIMPLE plans, $2,500.

If you have any questions regarding the limitations
and how they apply to you, feel free to contact us. We’re here to help.