Kiddie tax: New hazards, new opportunities

Despite its name, the “kiddie tax” is far from child’s play. And a change made by the Tax Cuts and Jobs Act (TCJA) puts some adult teeth into the tax. Now, children with unearned income may find themselves in a tax bracket higher than that of their parents. At the same time, the TCJA creates new opportunities for family income shifting.

Income shifting discouraged

At one time, parents could substantially reduce their families’ tax bills by transferring investments or other income-producing assets to their children in lower tax brackets. To discourage this strategy, Congress established the kiddie tax in 1986. The tax essentially eliminated the advantages of income shifting by taxing all but a small portion of a child’s unearned income at his or her parents’ marginal rate.

When the kiddie tax was first enacted, it applied only to children under 14, but in 2007 Congress raised the age threshold to 19 (24 for full-time students). Note that the kiddie tax doesn’t apply to children who reach 19 (or 24, if applicable) by the last day of the tax year. In addition, the tax doesn’t apply to children who either 1) are married and file joint returns, or 2) are 18 or older and have earned income that exceeds half of their living expenses.

Tax bite bigger

Now the kiddie tax applies according to the tax brackets for trusts and estates, rather than at the parents’ marginal rate. In previous years, the kiddie tax essentially undid the benefits of shifting investment income to one’s children. By applying the parents’ marginal rate to that income, the tax result was about the same as if the parents had retained ownership of the assets. 

But the TCJA’s approach can push children into a tax bracket higher than that of their parents in many cases. That’s because, for 2019, the highest marginal tax rate for trusts and estates — currently, 37% — kicks in when taxable income exceeds $12,750. For individuals, that rate doesn’t apply until taxable income reaches $510,300 ($612,350 for joint filers).

Planning opportunity

Although the new kiddie tax rules can lead to harsh consequences for many families, they may create tax-saving opportunities for higher-income taxpayers. Because the tax is now applied using the progressive rate structure for trusts and estates, rather than the parents’ marginal rate, parents can shift a limited amount of investment income to their children at lower tax rates. For example, parents in the 37% tax bracket can shift income up to $14,950 (the $2,200 unearned income threshold plus $12,750) before the 37% rate applies.

There are also several ways to shift income to your kids without triggering kiddie tax issues. For example, you can:

  • Transfer investments that emphasize capital appreciation over current income, allowing the child to defer income until the kiddie tax no longer applies,
  • Transfer tax-deferred savings bonds,
  • Transfer tax-exempt municipal bonds,
  • Contribute to 529 college savings plans, and
  • Hire your kids.

Employing your children can be beneficial because earned income isn’t subject to kiddie tax; plus, your business can deduct the expense.

Look before leaping

Depending on your circumstances, shifting income to your children may reduce your tax bill. But given the risk that income-shifting may increase it, look closely at the kiddie tax before you attempt this strategy.

How the Tax Reform May Affect Your Return Next Year

The Tax Cuts and Jobs Act (TCJA) was signed into law at the end of 2017. These new laws and regulations could have a major impact on your individual and business tax planning. Below are some questions and answers that may be applicable to your tax situation. This is the right time to take advantage of last-minute tax planning opportunities that could potentially reduce your tax liability for 2018 and future years.


Will I still be able to claim a personal exemptions for myself and my dependents?

For 2018 through 2025, personal exemptions have been suspended. This will substantially increase taxable income for large families. However, increases in the standard deduction and the child credit, in conjunction with lower tax rates, could mitigate this increase.

The child credit has been doubled to $2,000 per child under age 17. In addition, the credit will be available to more families than in the past. The credit will not begin to phase out until adjusted gross income exceeds $400,000 for joint filers ($200,000 for all other filers), compared with the 2017 phase-out thresholds of $110,000 and $75,000, respectively. The TCJA also includes a $500 credit for qualifying dependents other than qualifying children.

Will I be better off itemizing or taking the standard deduction?

The TCJA nearly doubled the standard deduction for 2018 ($12,000 for single and separate, $18,000 for heads of household, and $24,000 for joint filers). This increased deduction may be more beneficial than itemizing, especially with the changes made to itemized deductions. As in the past, taxpayers on the borderline between itemizing and taking the standard deduction should consult with their tax preparer for tax planning strategies.

How will my itemized deductions change?

The deduction for state and local income taxes, real estate taxes, and personal property taxes (or sales tax if greater) is now capped at $10,000 per year ($5,000 for separate).

The home mortgage interest deduction will be limited to interest expense incurred on a maximum ceiling of $750,000 of home mortgage acquisition debt, unless the debt was incurred prior to 12/15/17, where the limitation remains at $1 million. The reduced ceiling is in effect from 1/1/18 through 12/31/25. 

In addition, the home equity loan interest deduction was repealed through 12/31/25. Home equity debt that qualifies as acquisition debt (secured by the principal residence and used to buy, build, or significantly improve your main or second home) and is less than the $750,000 limit previously noted would still be deductible. 

Miscellaneous deductions have been eliminated, which means that unreimbursed business expenses will be gone. Out-of-pocket employee expenses are no longer deductible. If the amount of these expenses is substantial, you might consider negotiating a wage increase or expense reimbursement by your employer. 

Is alimony still deductible under the new tax law?

If you are already divorced or your divorce is finalized in 2018, you will still be able to deduct your alimony payments. However, the new law eliminates the deductibility of alimony for divorces executed after 12/31/18. You will not lose your tax deduction if you need to modify an existing divorce decree. The original orders will still be governed by the laws in effect at the time those orders were entered. However, a couple will have the option of going by the new law when modifying their pre-2019 divorce in the future.

Are there any new benefits for pass-through business owners?

Self- employed individuals and owners of pass-through entities that meet certain requirements may be able to deduct as much as 20% of the net income that comes directly from the business (known as ‘qualified business income’) on their individual income tax returns. Taxable income must be under $157,500(or $315,000 if married, filing jointly) in order to receive the full deduction. There are additional qualifications and limits when income levels exceed these thresholds.

Am I still required to have health insurance for myself and members of my family?

The TCJA repealed the individual shared responsibility payment (penalty imposed on individuals who do not have health insurance). However, other aspects of the Affordable Care Act are still in place.


Did the tax reform act have any effect on business deductions?

Some business write-offs have been eliminated or made more complicated this tax season. 

The deduction for business interest expense now has limits based on sum of business interest income, plus 30% of adjusted taxable income 

Net operating losses can now offset only 80% of taxable income, rather than 100%, and no longer includes income in carryback years.

Entertainment expenses (i.e. taking your client to theater or sporting events) and various fringe benefits (i.e. your employees’ Commuting Fringe Benefits and Moving Expenses) are no longer deductible. Meals are still 50% deductible if associated with the operation of a trade or business.

The Domestic Production Activity Deduction (DPAD) was repealed for tax years beginning after 12/31/17.

The corporate alternative minimum tax (AMT) has been eliminated under the new tax law. This tax was designed to ensure that companies with large taxable incomes would pay at least a small amount of tax.  In addition, unused minimum tax credits can be refunded if certain criteria are met.

Businesses can claim a larger 100% first-year depreciation deduction on qualified property (new or used). The new law increased the maximum deduction form $500,000 to $1 million, and it also increased the phase-out threshold from $2 million to $2.5 million.

Get the Answers Now

The Tax Cuts and Jobs Act may have resulted in more questions than answers. Tax professionals are still waiting for Congress and the IRS to clarify many of the new provisions. Unfortunately, this is not simplification at all, and many tax professionals will find it necessary to increase their fees because of additional education requirements, staffing and the complexity of the requirement reporting.  Please contact our office, and we will be happy to assist you. 

IRS Steps in Against Identity Theft

By: Heather R Cunningham

Over the past several years, tax-related identify and refund fraud has become much more prevalent.  Identity thieves file tax returns using stolen social security numbers and claim false refunds.  They often file electronically and early in the year before the IRS is able to verify the information being submitted, and before the real taxpayers have a chance to file their returns.  Then, when the individual whose social security number has been falsely used attempts to file, their return is rejected because the IRS only allows one return to be filed per social security number.  Once this happens, the taxpayer is forced to file their return on paper, completing additional forms and procedures with the IRS to verify their identity, which delays the processing of their return and receipt of any refund.

The IRS is developing techniques to combat this tax-related fraud.  One way is by using a pilot program that began during 2015.  As part of this program, the IRS has started working with several large payroll companies to develop methods to help verify W-2 information.  The IRS developed a program which generates unique codes for the payroll companies to report on the W-2’s they prepare.  This unique code will then be entered into tax software when the individuals prepare their tax returns.  In order for that return to be accepted by the IRS the codes on the w-2 must match what was generated in the IRS’s system.  Since identity thieves will not have access to the w-2 codes when filing their false returns, the codes won’t match, the return will be rejected.

During the first year of implementation, the program was used for 1.5 – 2 million W-2’s.  The IRS plans to have it expanded to anywhere between 24 and 50 million W-2’s for the 2016 tax year.

As we all know of someone who has been the victim of some form of identity theft, it is good to see the government taking steps to prevent it.

If you have questions or concerns, contact us or call us at 216.524.8900

Mid-Year Tax Planning

by: Kassie Armstrong

Summer is here and you’re most likely thinking about upcoming vacations, weddings, and pool parties! What you’re probably not thinking about is taxes–but maybe you should be. Here are a few things that you can do now that will help ease the burden of dealing with taxes at year end:

Adjust your withholding
If you’re getting married, divorced, or having a baby this year, all these life changes can affect your taxes. Changing your W-2 withholding or exemptions is fairly simple, just stop by human resources or your payroll department and submit a new W-4. Many employers allow you to do this online as well.

Evaluate estimated taxes
Since the year is almost half over already you should have a good idea of what your total income will be for the year. If you think your income will change significantly from prior year, you should adjust your estimated tax to prevent a big over payment or underpayment and penalties at tax time.

Get organized
Set up a tax folder and start gathering all your relevant tax documents in one place so you won’t have to hunt for them later. Keep charitable contribution receipts, unreimbursed medical expenses, business expenses, and other pertinent tax information. This will assist you in filling out that tax organizer at the beginning of next year.

Hire a tax professional
Summer is typically a little slower than during the busy filing season and tax professionals are more willing to take on new clients and spend some time on tax planning strategies.

Feeling overwhelmed or don’t have the time to take a quick peek? Give us a call at 216.524.8900 or fill out our contact form. One of our tax experts can get you organized and put a plan together to make sure you’re not scrambling at the end of the year!

Important rules that every non-profit volunteer should know

by: Melissa Love, CPA

Most non-profit organizations, regardless of size, couldn’t operate successfully without volunteers.  Sure, some of the larger ones have paid employees too, but many have governing bodies made up entirely of volunteers.   Without relying on these individuals, many organizations simply could not afford to present programs, raise funds or properly serve their members or community in a way that serves the intended purpose or mission.  According to the IRS, 85% of all charities operate with no paid employees and rely solely on volunteers.

Are there downsides to drawing from this well of free labor?  Unfortunately, yes.  Charities are often victims of theft, fraud, and improper governance due to the acts of dishonest, careless or unqualified volunteers.  So it’s very important to be selective and maintain a responsible governing body.

Even the best volunteers have limited availability.  Life happens.  People are contributing their spare time, which is sometimes scarce when also managing a job or family. Because of this, we often see issues arise during periods of Board transition. Lack of communication between incoming and outgoing members coupled with the possibility of key positions being left vacant can cause gaps in proper governance.

Non-profit organizations are often left scrambling to pick up the pieces after the IRS has notified them of a revoked charitable status, improperly classified employee, non-deductible expense, or taxable income resulting from an unrelated business activity.  While some non-profit organizations are blessed with volunteers who are well suited to navigate the necessary applications, filing requirements and ongoing compliance required to keep their non-profit status with the IRS, many are not.

Are you currently a volunteer?  Here are some specific areas of concern regarding the governance of non-profit organizations that you should be aware of when serving as a volunteer or on a Board:

Maintain your compliance

Each state has different filing requirements to maintain non-profit status.  Ohio requires that all charitable organizations file the Articles of Incorporation with the Ohio Secretary of State along with a code of regulations under which the organization will govern.  After the initial filing, a Statement of Continued Existence must be filed with the Ohio Secretary of State every 5 years to avoid cancellation of the Articles of Organization.  Many Ohio charities are also required to file an annual report with the Ohio Attorney General to ensure their compliance with various requirements.

Stay organized   

Keep on file all organization documents of the non-profit, including the Articles of Organization, Charter, application for tax-exempt status with the IRS (Form 1023 or 1024) and the Determination Letter from the IRS.  For many public charities, these items must be available for public inspection.

Be aware of Form 990

Form 990 (990-EZ, 990-N, 990-PF, etc.) is the annual Return of Organizations Exempt from Income Tax.  The return is due the 15th day of the 5th month following the end of the organization’s taxable year.  If the organization fails to file Form 990 for three consecutive years, the IRS will revoke the tax-exempt status.

Keep your records

Proper recordkeeping should be maintained for all activities of the non-profit organization.  This includes detail for all funds travelling into and out of the non-profit, along with any employment records, donor information and amounts, etc.  Especially important are receipts for reimbursed expenses to volunteers and employees.  Improper recordkeeping could lead to the IRS disallowing the deductions and treating the reimbursement as taxable compensation to the volunteer.  These records should be kept for a minimum of 3 years following the filing of the Form 990 return with the IRS.

Understand taxable income

Although a group is deemed a non-profit organization by the IRS, this does not mean it avoids paying income tax altogether.  Income earned by the organization not substantially related to its exempt purpose may be taxable to the organization as unrelated business taxable income.  There are additional filing requirements to the IRS and the entity could be required to make estimated tax payments.

Know volunteer tax deductions

Expenses not reimbursed by the non-profit organization to its volunteers may be deductible on the volunteer’s personal income tax return as a charitable donation.  The value of the volunteer’s time and services is not deductible, but other non-reimbursed expenses, such as mileage and other travel/meal costs could be deductible.  Careful consideration must be given to ensure gifts/reimbursements to volunteers do not constitute compensation.

Both the Ohio Attorney General and the IRS have resources available on their websites to assist non-profit organizations and their board members to adopt sound governing practices to maintain their tax-exempt status and continue providing their charitable purpose in the most effective manner.

Navigating the rules of operating a non-profit organization can be a daunting task.  Our team of experts can work with you if you require any of the following:

  • Financial recordkeeping assistance
  • Help maintaining (or reinstating) non-profit status with the IRS or Ohio Attorney General
  • Guidance determining what expenses are deductible
  • How to determine an employee from a volunteer or what constitutes unrelated business taxable income

Contact us at 216.524.8900 or to set up a time to discuss your group’s situation.  

Tips for 2016 Tax Planning

by: Franco DiLiberto, CPA

As we dive into the tax season, it is important that you are aware of the new regulations and credits that are in effect as of January 1st. That's why we have created our annual 'Hobe & Lucas Tax Tips Cheat Sheet' which can be downloaded below.  Many of these regulations and credits should be taken into consideration when planning throughout the year in order to decrease tax liability. On our reference sheet, you will find a guide to some of credit limits and top tax areas which we find to be most important to clients and their tax planning process, such as:

  • New Business Mileage Rate
  • Health Care Tax Limits, including Affordable Care Act
  • New Retirement Plan Contribution LimitsHobe_Tax_Strategies_2016
  • Standard Deductions based on Filing Status

We all know tax planning can often be stressful and unclear to many since tax factors can change annually. Not to mention, your individual and business situations can often be complicated and complex!  At Hobe and Lucas, it's our goal to provide you with the assistance you need in order to minimize your tax liability through our well rounded tax knowledge and accounting services.

To download the PDF, please enter your name and email address below:

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Still have questions? Feel free to contact your Hobe and Lucas representative, call us at 216.524.8900 or email

Accounting for Your Wedding

by: David Baldoza, CPA

A client called the other day and told me she was planning to get married. “Congratulations!” I said. “Yes, thank you” was her reply, “but I need to know which will be better for our taxes – if we have the wedding this year or next.”

How romantic, right? But the decision to push the wedding date up or back a few months can potentially save (or cost) the happy couple a lot of tax dollars.

There are many variables that affect this calculation. The income of the future spouses is the most obvious, particularly if there is a large disparity between them. Filing status is another. Most unmarried people must claim Single filing status. But if they have children, as from a previous marriage, they may be able to claim the much-more-favorable Head of Household status. This option is unavailable if they’re married. Marital status can affect many other calculations on one’s tax return, like the alternative minimum tax (AMT) calculation, exemption and itemized deduction phase-outs, and the net investment income tax. State income taxes even need to be considered in a state like Ohio, which has a steep marriage penalty.

Preparing for a wedding can be a daunting process, but it makes sense to spend a few minutes with your accountant and let him or her run the numbers before you set a date. Even if the day is already fixed, you may be able to make some financial moves ahead of time to maximize your tax savings.

Small Business Owners: Avoid these payroll tax pitfalls

by: Yvonne Chmielewski

If you are a business owner, you have payroll taxes. As the Internal Revenue Service has intensified its payroll tax compliance program focusing on small businesses, it is not wise to take this responsibility lightly.

What taxes should you pay? Every employer must account for federal income tax, federal and state unemployment tax, social security, and Medicare. There also may be additional taxes depending in what state you operate. We cannot overstress the importance of accurately calculating, reporting and depositing these monies from your employees’ paychecks.

Here are the top pitfalls of employer payroll taxes:

  • Incorrectly paying unemployment taxes
  • Borrowing monies withheld from employees’ paychecks to cover cash flow
  • Making late deposits
  • Incorrectly classifying employees as independent contractors (1099’s)
  • Confusing depositing with reporting

Why are we mentioning these common pitfalls? The answer is simple. Because the consequences can be severe and could lead to high penalties and possible jail time:

Payroll tax penalties can add up quickly and generate potentially huge tax liabilities. The penalties that can be assessed on delinquent payroll tax deposits or filings can dramatically increase a small business’ payroll tax bill. Whether the small business is operated as a sole proprietorship, corporation, S-corporation or LLC, the tax penalties assessed can cause a business owner to lose his/her business. There are three major penalties that can be assessed–failure to file, failure to deposit and failure to pay.

The IRS pursues you for payroll taxes owed. In addition to the penalties above, the IRS can access the Trust Fund Recovery Penalty (TFRP) that can hold a responsible person accountable for 100% of the unpaid trust fund taxes. A person is liable for the TFRP if two statutory requirements are met: (1) the person is “responsible” — had the duty to account for, collect, and pay over the trust fund taxes to the government; and (2) the person “willfully” failed to collect or pay over trust fund taxes to the government. The IRS is able to “pierce” the corporate veil and pursue individual shareholders (even corporate officers) provided those individuals meet the requirements to be assessed the TFRP.

You could lose your business. As mentioned above, you have to remember that as an employer you are withholding taxes from your employees and that you are entrusted to pay those taxes to the IRS on behalf of those employees. The IRS takes a business owner’s trust obligation very seriously. The IRS has the power to padlock your doors. They have the further power to seize your inventory, machinery and equipment. They can also seize your funds and bank accounts through their levying authority. As a business owner, you should react immediately to any notices concerning your payroll taxes. Failure to do so can cost you your business.

Not filing or paying can be considered a federal crime. If the IRS cannot satisfy a small business’ payroll tax debt through its ordinary methods, it has the power to refer a business owner’s case to the Criminal Investigation Division and then on to the Department of Justice if it can be proven that there was intent not to file or pay the payroll taxes.

How can you avoid these pitfalls and make sure you are withholding the correct amounts? Work with a payroll company who knows the guidelines and regulations. GreenSmart Payroll Solutions, an affiliated company backed by Hobe and Lucas, offers customized and flexible payroll services combining all the capabilities of national payroll firms, but backed by a certified professional accounting firm you trust. Trust us to handle your tax payments, withholding and filings accurately and on time while providing the reporting you need to run your business.

Don’t wait until 2016, give us a call at 216.524.8900 to discuss your individual situation or fill out our contact form.

Ten Tax Breaks Available for Parents

How much money do you need to raise a child? According to an estimate from the U.S. Department of Agriculture, it will cost a middle-income couple roughly $245,000 to raise a child born in 2013 to the age of 18. This is up 1.8 percent from the prior year. Plus, the estimated average cost is much higher in certain parts of the country. For example, high-income families living in the urban Northeast United States are projected to spend almost $455,000 to raise a child for 18 years.

These figures cover costs for housing, food, transportation, clothing, health care, education, childcare, and miscellaneous expenses such as cell phones and sports team fees. But they do not include college. That can easily add tens or hundreds of thousands of extra dollars to the tab.

The tax code offers some measure of tax relief. Here is a list of 10 federal tax breaks for parents.

  1.              Dependency Exemptions

You can generally claim a dependency exemption for a child under age 19 or a full-time student under age 24, if you provide more than half of the child’s annual support. Each dependency exemption is $4,000 for 2015. However, you may lose at least part of the benefit of your exemptions if your adjusted gross income (AGI) is above a certain amount.

  1.              Child Tax Credit

Parents may be entitled to the child tax credit for each qualifying child under age 17 at the end of the year. The maximum credit for 2015 is $1,000 per child.

You may lose at least part of the benefit of your exemptions if your modified adjusted gross income (MAGI) is above a certain amount. To qualify, you must meet certain criteria regarding the child.

  1.              Child and Dependent Care Credit

Another tax credit may be claimed if you pay someone to care for a child under the age of 13, allowing you (and your spouse, if married) to be gainfully employed. The child and dependent care credit is based on a sliding scale. For parents with an AGI of more than $43,000, it’s equal to 20 percent of qualified expenses paid to a qualified caregiver to ensure the child’s well-being and protection. The total expenses that you may use to calculate the credit should not be more than $3,000 for one qualifying child or $6,000 for two or more qualifying children.

  1.              Earned Income Tax Credit (EITC)

This credit is only available to certain lower-income families. On a 2015 return, the maximum EITC amount available is $3,359 for taxpayers filing jointly with one child; $5,548 for two children; and $6,242 for three or more children. You may be eligible for the EITC without a qualifying child, but the credit is higher for families with children. If you can claim the EITC on your federal income tax return, you may be able to take a similar credit on your state or local income tax return, where available.

  1.              Adoption Credit

If you adopt a child, you may be eligible for a special tax credit for qualifying expenses. On a 2015 return, the maximum adoption credit is equal to $13,400 of the qualified expenses incurred to adopt an eligible child. However, credit amounts are phased out for upper-income taxpayers based on MAGI. The adoption credit begins to phase out for taxpayers with MAGI of $201,010 and is eliminated for those with MAGI of $241,010 or more.

  1.              Higher Education Credits

If you pay higher education costs for yourself or an immediate family member, including a child, you may qualify for one of two education tax credits (but you can’t claim both). The maximum American Opportunity Tax Credit is $2,500 per student while the maximum Lifetime Learning Credit is $2,000 per taxpayer. Both higher education credits are phased out for upper-income taxpayers based on MAGI.

  1.              Tuition Deduction

The deduction for qualified tuition and fee expenses, which had expired after 2013, was retroactively extended for 2014 by new legislation. It’s on the list of tax breaks Congress will address extending in 2015. Depending on your MAGI, the deduction on a 2014 return is either $4,000 or $2,000 before it’s completely phased out. Note that you can’t deduct tuition expenses if you claim one of the higher education credits.

  1.              Student Loan Interest

You may be able to deduct interest you paid on a qualified student loan up to a maximum of $2,500 for 2015. This “above the line” deduction can be claimed whether or not you itemize deductions on your tax return. You can only claim the deduction if your MAGI is less than a specified amount, which is set annually. The amount of student loan interest is phased out if your MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if you are married and file jointly).

  1.              Self-Employed Health Insurance Deduction

If you’re self-employed and pay for health insurance, you may be able to deduct premiums paid to cover your child, as well as yourself and your spouse, if married. This tax break, which was authorized by the Affordable Care Act, applies to children who are under age 27 at the end of the year, even if the child isn’t your dependent.

  1.           Potential Lower Tax Rates

Last but not least, parents may be able to benefit from shifting income-generating assets to children. As a result, income that is normally taxed to the parents in their high tax bracket is taxed to the children in their lower tax brackets. Of course, this means you must give up control over the assets.

However, remember that this strategy may be mitigated by the Kiddie Tax. Under the “Kiddie Tax,” the unearned income received by a dependent child under age 19, or a full-time student under age 24, is taxed at the top rate of the child’s parents to the extent that it exceeds $2,100 in 2015.

For more information about any of the above 10 child tax breaks — including limitations, detailed rules, and exceptionsemail us or call 216.524.8900.

Financial Records Retention: What Should You Keep?

Records Retention Schedule 2015Maintaining accurate financial records is often a daunting task, yet it is extremely important. Every business or individual should have a good records retention policy. Our clients often ask us:

What documents must you keep?
How long do you keep these documents?
How do the rules differ between IRS, federal and state?
What documents do you NOT need?

We've organized this into an easy to read PDF titled 2015 Hobe Record Retention Schedule.

To download the PDF, please enter your name and email address below:

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Here are a few suggestions:

General Rules of Thumb
Businesses and individuals should retain copies of filed tax returns indefinitely. These should be kept in a safe place.  If you prefer to keep your records electronically we can provide you with a secured pdf copy.  However, you should be sure to backup your computer records effectively if you choose to keep only electronic records.

What about Non-Tax Related Business Records?
Certain business documentation should be kept indefinitely.  This includes:

  • Articles of Incorporation
  • Legal communications
  • Patents, copyrights, trademarks
  • Audited financial statements and CPA audit reports
  • General ledgers and year-end trial balances

Aside from supportive tax records, other documents such as accounts payable/receivable ledgers, inventory reports, bank statements and reconciliations, invoices and expense reports should be retained for a minimum of 7 years.

What does this mean for Ohio?
Ohio's statute of limitations is 4 years, meaning they are permitted to examine your Ohio income tax returns for one year longer than the IRS.  We recommend that our Ohio business and individual clients retain all documentation for 4 years in the event of exam.  Many states have statutes that differ from the IRS regulations.  Be sure to  check the rules in your specific state before disposing of any records.

Final Thoughts
There are no rules from the IRS when it comes to how you maintain your records, only that you be able to deliver documents promptly should they ever ask.  It is extremely helpful to maintain an efficient record-keeping system, whether you prefer to keep hard copies or electronic records.  Please consult your legal team or advisors for the record retention adoption policy that best suits your organization.

It is important, once you have made the decision to dispose of documentation, that you shred it thoroughly before throwing it away.  These documents contain a great deal of personal information that you don't want to fall into the wrong hands.

Should you make the decision to keep your records in an entirely electronic format, be sure an adequate and secure backup system is in place to avoid a catastrophic loss of important information should there be equipment failure.

Remember, we're here to be your financial and tax partner all year round, not just during tax season!  If you would like to discuss your individual or business situation, please give us a call at 216.524.8900.