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  • Writer's pictureCharlsie Pecoraro

Visiting North Alabama, Record Keeping for Tax Time!

Last week, I was traveling in North Alabama and was unable to publish the blog. I was hoping to fill The Local Vibe with pictures of the changing of the season however it hasn't been cold enough there to affect the autumn leaves. Decatur, Cullman and Birmingham did offer rolling hills, wonderful people and some delicious food.

Alabama White Sauce

A visit to Decatur would not be complete without grabbing a plate of barbecue at Big Bob Gibson's restaurant. This local eatery is the birthplace of the famous Alabama White Sauce for BBQ. I enjoyed a serving of smoked turkey along with some incredible sides. Everything tasted like it had been cooked low and slow. The sauce is everything it claims to be! Click on the restaurant link above to read about the history of this sauce and the founder of this local favorite.

After dinner, I drove through the Old Decatur and Albany Historic Districts to see the largest concentration of Victorian era craftsman and bungalow homes in Alabama. These architectural wonders are filled with families calling these historic buildings home.

My hotel, a Hilton Doubletree, was located overlooking the Tennessee River. I actually had a "room with a view"! It was interesting to watch the bridge traffic as well as the boat traffic from my fifth floor suite. Something that resonated with me was how peaceful the town was. There was no blaring music from cars passing by. (Many Mobile residents feel the need to share their car tunes with everyone). All I heard were the sounds of nature and an occasional boat horn.

I enjoyed the incredible hospitality and good manners that are second nature to the residents. I was pleasantly surprised when a couple of young men stepped aside for me to enter the elevator first at the hotel. I thought chivalry had died with the new generation of folks. I am thankful to be wrong! Oh and I can't move on without mentioning the superior driving skills that exist in the northern part of the state. Drivers actually stop for red lights and help others merge into traffic. Coastal residents could learn so much from their counterparts up north.

On Thursday morning, after a wonderful breakfast at the hotel, I headed south to Cullman for a client meeting. This town is thriving with local business and was abuzz with activity. Many downtown areas in America are vacant and neglected. That is not the case for this Alabama gem. There were boutiques, antique shops, business concerns, restaurants and a local farmer's market. I was delighted to see folks out and about supporting their neighborhood local businesses. Thanks to a great recommendation from boss partner, Monica Wesson (The Joint Mobile), I dined at Rumors Deli for lunch. My Rosemary Turkey Panini was incredible and the atmosphere was so interesting. I really appreciate the ambiance that the owners have created in this local establishment. I am already planning a return trip just to browse the shops!

The ride from Decatur to Birmingham was beautiful. There is an abundance of trees, rolling hills and significant rock formations to keep nature lovers entertained. In fact, I wanted to visit The Wheeler National Wildlife Refuge in Decatur, however I ran out of time and will need to schedule that for my next visit. It encompasses 34,500 acres of preserved woodlands with walking trails and more.

This was my first overnight visit to Birmingham. Like many of you, I have ridden through it countless times and grabbed an occasional lunch there, while on the road. I was happy to have some time to explore areas of this charming southern city.


Phalaenopsis Orchid from Trader Joe's

Thursday evening, found me out sight seeing. I must admit that I made a Trader Joe's run for spices, doggie treats and of course, an orchid! The closest TJ to Mobile is in Tallahassee or perhaps the one in New Orleans. I do miss the fresh flowers and other offerings that this unique grocery store has to offer. This one is located among many other interesting places in The Summit Shopping Center.

coffee and shortbread
French Press at Innova

As a devoted coffee lover, I seem to be able to find extraordinary coffee houses in cities that I visit. Innova Coffee did not disappoint. It is located in an upscale apartment complex's clubhouse on Colonnade Place. Owner, Tyler Nash, took time to converse with me and tell me a little about his coffee shop. I found it interesting that he was in the corporate finance world for 25 years prior to finding his passion for coffee. The 2008 crash pushed his vocation in a totally new direction. I know his customers are grateful that he jumped into entrepreneurship!

The atmosphere at Innova is very conducive for client meetings, ZOOM calls or just chilling out with a wonderful cup of java. The little shortbread treat was made in-house and I regret not buying some "to go".

Since this was a business trip, I came home with a significant pile of receipts! Check out the following article from Richard Lindsey! Learning about which ones to keep and which ones to toss for taxes is important.

 



What receipts do I need to keep for taxes? How long should I hold on to them? What will I need if I get audited? I imagine everyone contemplates these questions when tax season rolls around. Richard Lindsey of Lindsey & Waldo CPA shared a great article that will shed some light on what is important. Thank you, Richard for your wealth of knowledge.


My Record Keeping Principles by Richard Lindsey

Many of our clients have never received that dreadful notice from the IRS, initiating an audit -- or, much worse, the KNOCK on the door! If you never have, you probably don't keep much financial documentation.

If you have, you are probably terrified to part with a single receipt.

But remember, either way, we're in your corner.

However, the IRS is one of the few courts where failure to produce proof of your claims results in the assumption that you are guilty of tax fraud.

(This is part of the reason why you ALWAYS want a professional on your side in these matters. Would you go to court without an advocate? Would you go before a court with a software-generated defense? "Your honor, here is my lawyer, Siri.")

So, it's imperative that you are able to protect yourself. And, as great as we are -- some of this still does fall in your court. That's why you must save all the financial documents used to create your tax returns, in order to defend yourself in the case of an audit.

The tax courts consistently slap down arguments that don't rely upon actual documentation. That's the big takeaway here.

So, take some time this week to make sure that you have a workable system that enables you to follow these guidelines:

1) Retain a paper copy or receipt of any tax-relevant transaction. Scan these documents and archive them electronically or acquire them in an electronic format. If the purchase has a manual or warranty, store all the documents in the same electronic and physical location.

Sadly, the IRS has ruled bank or credit card records to be insufficient documentation. As a result, just keep your statements long enough to reconcile your account.

If the purchase was a business or tax-deductible expense, record the expense and why it justifies the deduction. Store this information with or on the receipts.

2) Keep brokerage statements indefinitely for taxable accounts. You are responsible for reporting the cost basis of any security you sell to calculate the capital gains tax. For a mutual fund with 30 years of reinvested dividends, each dividend payment is part of the cost basis. As a result, the cost basis can sometimes be computed only if you have the complete transaction history.

Without knowing the cost basis, the IRS could argue that the entire value of the investment be treated as gain.

If you have lost the record of how much you originally paid for an investment, instead of selling and paying 15% or more of the value in taxes, you can use that investment as part of your charitable giving. Gifting appreciated stock avoids the tax owed and still qualifies for a full deduction. Oddly enough, the IRS still asks for the original purchase date and price for gifted securities, but leaving these blank has no effect on your tax owed.

Many custodians keep several years of electronic copies of brokerage statements available. And they are now required to send any known cost basis electronically when you transfer securities to a new custodian. If your current custodian has the correct cost basis of your securities, you probably no longer need to keep brokerage statements. However, an approach of "better safe than sorry" is always advisable with the IRS.

3) Keep IRA nondeductible contribution records forever. You may need those records every year that you withdraw money in retirement to show that a portion of the withdrawal is not tax deductible.

Or to avoid the hassle, clear out nondeductible IRA contributions by converting all of your IRA accounts to Roth accounts.

4) Keep partnership documents, contracts, commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes any transfers of value for estate planning purposes.

5) Save ALL of your tax returns. After you file, save the paper and/or electronic copies with the rest of that year's financial documents.

Tax returns and all the supporting documentation must be kept at least seven years. The IRS can audit your return for up to three years from your filing date. However, the three-year limit only applies to good-faith errors.

If the IRS suspects you underreported your gross income by 25% or more, they have up to six years to challenge your return. And because we can all file for an extension at the October 15 deadline, you must keep your records for at least seven years.

Regardless of those rules, though, if the IRS suspects you filed a fraudulent return, no statute of limitations applies.

Unfortunately, whenever the IRS challenges you, the burden of producing evidence that your claims are true rests entirely with you, so you had better have your documentation in order.

Taxpayers collectively spend six billion hours, or 8,758 lifetimes, annually trying to comply with the tax code. Fortunately, as I previously mentioned, YOU don't have to be the one doing all the heavy lifting. We are on your side... meetdaboss.com/lindsey-waldo-cpa

 

Have a wonderful weekend and Happy Halloween! ~ Charlsie



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