Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Nov 22

    Most 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 might not 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.”)

    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.

    Firstly (and perhaps this goes without saying), 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.

    Second, 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.

    Third, 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.

    Fourth, 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.

    Finally, 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 you may file for an extension and then file your return 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. Because the IRS is run and organized by fallible people (with all of their attendant biases, emotions, etc.), we suggest keeping your tax returns and documents forever.

    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 to do all the heavy lifting. We are on your side…

    “If you don’t have time to do it right, when will you have time to do it over?” – John Wooden

  • Nov 10

    I know in polite company and business communications you’re not supposed to talk politics and religion, but I am SO tired of talking to business owners whose religion is…

    Price.

    At least that’s what some of you believe. Based on your actions – the only way you ever talk about your product or service is that you are the cheapest provider in the city/area/community/street/block — you believe you SHOULD BE and CAN BE the low price leader in your category. Don’t you know you are worshiping at the altar of shortsightedness?

    Yes, there is a place for the lowest cost provider, but that place is fraught with peril. The margins there are razor thin; you must be ever vigilant to honor the gods of cost cutting and pray that someone more committed (or with deeper pockets) than you doesn’t step into your marketplace and undercut your price by a penny.

    Remember a few years ago when Apple® released their newest (at the time) iPhones, the iPhone 6 and iPhone 6 Plus. To say there was a lot of hoopla would be an understatement, right? Apple® released the new and improved phones on Friday, September 19th and by Monday they had sold 10 million units, one million more than the first week of the 5s and 5c the year before.

    Despite the “bad” economy. Despite losing its visionary co-founder and CEO, Steve Jobs. Despite my belief that 10 million people can’t NEED a new Apple® phone. Despite that Apple® products are rarely, if ever, cheaper than the competition.

    Apple® has achieved what every business owner dreams of: the ability to charge premium prices and still attract business. Apple® has successfully refused to bow at the altar of low price—and your business can too. Here are four ways Apple® has accomplished this…

    Can you apply these principles to your business?

    1. POWERFUL BRANDING. Thanks to a well executed branding campaign, Apple® has built a brand that is trendy, cool, and technologically advanced. The iPhone, in particular, has become a status symbol for many.
    2. STRATEGIC MARKETING. Every time a new product is launched, customers line up for hours (if not days) outside Apple® retail locations. And every time, a product shortage prompts anxiety and even desperation from customers who were unable to get their hands on the product. The result is a palpable feeling of scarcity and value—customers feel privileged to fork over $200-300 for the latest model or closer to $650-750 if their plan isn’t eligible for an upgrade! While Apple® won’t admit that they intentionally create product shortages in order to create a buzz, it’s hard to imagine that they wouldn’t be able to meet everyone’s demand on day one if they wanted to.
    3. EXCELLENT CUSTOMER SERVICE. Apple Care, the company’s warranty and customer care program, provides a level of service that is unparalleled in the electronics industry. The peace of mind that comes from knowing that expert help is a phone call away is a big part of the value Apple® provides.
    4. THE PRODUCT THAT DOESN’T DISAPPOINT. Branding, marketing, and customer service don’t mean anything if the product is disappointing. Apple® doesn’t cut corners and doesn’t make promises that its products can’t keep—resulting in customers that are consistently thrilled with their purchase. At the end of the day, if a product can’t live up to the expectations set by its marketing; it won’t be successful in the long-term.

    Apple® doesn’t compete on price—and your business doesn’t have to, either. Apply these lessons… and you’ll find that you have the ability to charge premium prices and still win the business!