First, let’s discuss the elephant in the room: the mid-term elections.

Depending on when you’re reading this, they might be underway in your Orange County, California precinct, they might be already in the rearview, they might not even have raised themselves to the level of your awareness.

Allow me to offer my two cents (and note, I am writing this BEFORE we know what has occurred).

My entire professional experience is driven by the decisions of Congress (AND the executive branch, vis a vis the IRS) … so what I tell you now is based on hard-won history. And it is this:

No matter if you are happy, upset, gratified, fearful, or ambivalent … what you are reaching for in your life has very little to do with what happened Tuesday. Yes, there might be some small ways in which you might be affected. But the merchants of fear and chaos (i.e. the media, both social and corporate) want you to be in a continuous state of agitation and angst. 

It is a foundational requirement inherent within their business model.

What if you made the choice today to opt out? What if you flossed your mental space and cleared out the clutter resulting from all of the junk “out there,” and approached your life “in here” as the most important point of leverage for your state of mind, your joy? I’m referring to your family, your friends, your vocation, and your mind. Those are the places where you make the MOST difference and are most consequential for your experience on this patch of dirt.

Some might call this ostrich-thinking, or naive – I understand. But again, I’m speaking as someone whose world is (very consequently) affected by political matters … and this is what I’m reaching for because it is simply the best way to operate within what I can actually control.

So let’s lay our pitchforks down and get on with living well with one another, shall we?

I have some important advice about tax documentation today for those who might have the IRS turn its particular attention their way, but one last thing before I get there: I want to express my deeply felt gratitude to all our veterans as November 11th approaches. To sacrifice for others and carry the weight of combat and service to defend the rights and freedoms we hold as precious demands respect. 

One way we here at Ameritax would like to give back is by helping you know the full tax considerations available to you as a veteran and by making sure you capitalize on all that you can. We want to help:
866-282-3127

And of course, our help comes in many forms, starting with today’s topic…

A Tax Documentation Backup How-to for Orange County, California Filers
“We can lick gravity, but sometimes the paperwork is overwhelming.” – Wernher von Braun

It used to be you had to be some kind of hoarder to keep track of receipts and logs to claim tax deductions. The IRS is pretty detail-oriented and will inspect every crumpled paper to be sure you’re taking those deductions rightly.

Some of my Orange County, California clients choose the old shoebox trick as their filing cabinet, throwing every bit of documentation in there… handing it off to my office when tax season comes expecting miracles. 

Obviously, not ideal.

And though you do have to hoard all the information for those deductions, there is a better and smoother way to getting tax documentation organized ahead of time. 

Let’s start here: The United States Tax Code has about as many words in it (around a million) as the Harry Potter series. (Guess which one more folks have read?) That’s a long code, and in it are a lot of long words. One of them is “contemporaneous.” 

That’s the type of document you need to adequately back up your claims for various tax deductions. 

But what does it mean? 

‘Guesstimate’

The simple definition of “contemporaneous documentation” for your tax recordkeeping: If you’re claiming something as a deduction, your paperwork has to be from the moment the deductible event occurred. 

Keep that dated Staples receipt from that day you bought the copier paper. Record those business miles right after you drove them, not six months later from memory. 

Oh, c’mon – does anybody really check tax documentation?

They do. In one case not long ago, the IRS successfully socked a real estate owner for half a mil-plus in taxes just because the paperwork didn’t hold up. The Tax Court’s reasoning? Information written at the time of the expense generally carries more weight in tax arguments than a “postevent ‘ballpark guesstimate.’” 

Ouch. Yeah, they do check.

A receipt in hand …

Always get a receipt. There’s just no substitute. 

If you forget, contact the store, business, or organization immediately and get a receipt with the right date of service. If you lose the receipt and you bought the item or service with your card, keep the monthly transactions statement. If it’s an electronic record, print it out (and note where to find it online if you need another copy at tax time). 

Canceled checks or other documents reflecting proof of payment/electronic funds transferred are good. So are cash register tape receipts, account statements, credit card receipts, and invoices. You might need a combination to prove your deduction, so save early and often. 

(And please, toss that shoebox and use our organizer or keep your documents electronically to print out later. If organizing drives you batty between now and April, give us a buzz.) 

Time and substance

Deductions that you need tax documentation to substantiate include charitable contributions, business deductions for expenses and capital purchases, tip income, mileage logs, tip records, and gambling losses. And you want details, details, details. 

To deduct your high-stakes bet at the local casino, for instance, you need an “accurate diary or similar record,” the IRS says, of your winnings and losses. You need to be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses. 

Written acknowledgment of a charitable contribution of 250 dollars or more must have:

• the name of the organization
• the amount of the cash contribution and/or description (but not value) of a non-cash contribution
• a statement that no goods or services were provided by the organization (if that’s true)
• a description and “good faith estimate” of the value of goods or services

… among other details. 

(Donations are an especially vulnerable deduction claim without good documentation. In fact, for a big donation like a car, boat, or plane, you need a special tax form: the federal 1098-C.) 

For other records: 

Tip income. This can be a diary, electronic log, or worksheet. You could even use a tip-tracking app. Again, record the income details ASAP. 

Mileage. These records are not only for those in business; mileage can be a deductible expense for medical or charity reasons. Keep track of the date, mileage per trip, and the reason for the trip. A host of apps can help with this, too. 

Speaking of time

How long do you have to clutter your life with all this tax documentation? 

For assessment of tax you owe, three years is about as far back as tax authorities will go, though that could stretch as long as six years (assuming you did file an honest return – there’s no statute of limitations for not filing or for being a crook).

For filing a claim for an overpayment resulting from a bad debt deduction or a loss from worthless securities, you’ll want to keep the records for seven years.

If there’s anything I could emphasize to my clients as a starting point for preparing taxes during tax season, it’s this: get your tax documentation organized now. 

Having a documented system and keeping it organized from the get-go, will guarantee not only a better experience for you (and my office) during filing time but also an assurance if the IRS were to take the fine-tooth comb to your documentation.

And, if you need help getting a system together for this, reach out.

On your team, 

Tom Bass