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1040ez. 1040ez.com com 1. 1040ez.com Importance of Records Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Benefits of Recordkeeping Kinds of Records To Keep How Long To Keep Records Introduction A farmer, like other taxpayers, must keep records to prepare an accurate income tax return and determine the correct amount of tax. 1040ez.com This chapter explains the benefits of keeping records, what kinds of records you must keep, and how long you must keep them for federal tax purposes. 1040ez.com Tax records are not the only type of records you need to keep for your farming business. 1040ez.com You should also keep records that measure your farm's financial performance. 1040ez.com This publication only discusses tax records. 1040ez.com The Farm Financial Standards Council has produced a publication that provides a detailed explanation of the recommendations of the Council for financial reporting and analysis. 1040ez.com For information on recordkeeping, you can purchase and download Financial Guidelines for Agricultural Producers at www. 1040ez.com ffsc. 1040ez.com org. 1040ez.com For more information, contact Countryside Marketing, Inc. 1040ez.com in the following manner. 1040ez.com Call 262-253-6902. 1040ez.com Send a fax to 262-253-6903. 1040ez.com Write to: Farm Financial Standards Council N78 W14573 Appleton Ave. 1040ez.com , #287 Menomonee Falls, WI 53051. 1040ez.com Topics - This chapter discusses: Benefits of recordkeeping Kinds of records to keep How long to keep records Useful Items - You may want to see: Publication 51 (Circular A), Agricultural Employer's Tax Guide 463 Travel, Entertainment, Gift, and Car Expenses See chapter 16 for information about getting publications. 1040ez.com Benefits of Recordkeeping Everyone in business, including farmers, must keep appropriate records. 1040ez.com Recordkeeping will help you do the following. 1040ez.com Monitor the progress of your farming business. 1040ez.com You need records to monitor the progress of your farming business. 1040ez.com Records can show whether your business is improving, which items are selling, or what changes you need to make. 1040ez.com Records can help you make better decisions that may increase the likelihood of business success. 1040ez.com Prepare your financial statements. 1040ez.com You need records to prepare accurate financial statements. 1040ez.com These include income (profit and loss) statements and balance sheets. 1040ez.com These statements can help you in dealing with your bank or creditors and help you to manage your farm business. 1040ez.com Identify source of receipts. 1040ez.com You will receive money or property from many sources. 1040ez.com Your records can identify the source of your receipts. 1040ez.com You need this information to separate farm from nonfarm receipts and taxable from nontaxable income. 1040ez.com Keep track of deductible expenses. 1040ez.com You may forget expenses when you prepare your tax return unless you record them when they occur. 1040ez.com Prepare your tax returns. 1040ez.com You need records to prepare your tax return. 1040ez.com For example, your records must support the income, expenses, and credits you report. 1040ez.com Generally, these are the same records you use to monitor your farming business and prepare your financial statements. 1040ez.com Support items reported on tax returns. 1040ez.com You must keep your business records available at all times for inspection by the IRS. 1040ez.com If the IRS examines any of your tax returns, you may be asked to explain the items reported. 1040ez.com A complete set of records will speed up the examination. 1040ez.com Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. 1040ez.com You can choose any recordkeeping system suited to your farming business that clearly shows, for example, your income and expenses. 1040ez.com You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. 1040ez.com See chapter 2. 1040ez.com If you are in more than one business, you should keep a complete and separate set of records for each business. 1040ez.com A corporation should keep minutes of board of directors' meetings. 1040ez.com Your recordkeeping system should include a summary of your business transactions. 1040ez.com This summary is ordinarily made in accounting journals and ledgers. 1040ez.com For example, they must show your gross income, as well as your deductions and credits. 1040ez.com In addition, you must keep supporting documents. 1040ez.com Purchases, sales, payroll, and other transactions you have in your business generate supporting documents such as invoices and receipts. 1040ez.com These documents contain the information you need to record in your journals and ledgers. 1040ez.com It is important to keep these documents because they support the entries in your journals and ledgers and on your tax return. 1040ez.com Keep them in an orderly fashion and in a safe place. 1040ez.com For instance, organize them by year and type of income or expense. 1040ez.com Electronic records. 1040ez.com All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. 1040ez.com When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. 1040ez.com An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. 1040ez.com The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. 1040ez.com All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. 1040ez.com Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. 1040ez.com The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. 1040ez.com You still have the responsibility of retaining any other books and records that are required to be retained. 1040ez.com The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. 1040ez.com This test is not considered an examination and the results must be shared with you. 1040ez.com If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. 1040ez.com If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copybooks and records in a manner that allows you and the IRS to determine your correct tax. 1040ez.com For details on electronic storage system requirements, see Rev. 1040ez.com Proc. 1040ez.com 97-22. 1040ez.com You can find Rev. 1040ez.com Proc. 1040ez.com 97-22 on page 9 of Internal Revenue Bulletin 1997-13 at www. 1040ez.com irs. 1040ez.com gov/pub/irs-irbs/irb97-13. 1040ez.com pdf. 1040ez.com Travel, transportation, entertainment, and gift expenses. 1040ez.com Specific recordkeeping rules apply to these expenses. 1040ez.com For more information, see Publication 463. 1040ez.com Employment taxes. 1040ez.com There are specific employment tax records you must keep. 1040ez.com For a list, see Publication 51 (Circular A). 1040ez.com Excise taxes. 1040ez.com See How To Claim a Credit or Refund in chapter 14 for the specific records you must keep to verify your claim for credit or refund of excise taxes on certain fuels. 1040ez.com Assets. 1040ez.com Assets are the property, such as machinery and equipment, you own and use in your business. 1040ez.com You must keep records to verify certain information about your business assets. 1040ez.com You need records to figure your annual depreciation deduction and the gain or (loss) when you sell the assets. 1040ez.com Your records should show all the following. 1040ez.com When and how you acquired the asset. 1040ez.com Purchase price. 1040ez.com Cost of any improvements. 1040ez.com Section 179 deduction taken. 1040ez.com Deductions taken for depreciation. 1040ez.com Deductions taken for casualty losses, such as losses resulting from fires or storms. 1040ez.com How you used the asset. 1040ez.com When and how you disposed of the asset. 1040ez.com Selling price. 1040ez.com Expenses of sale. 1040ez.com The following are examples of records that may show this information. 1040ez.com Purchase and sales invoices. 1040ez.com Real estate closing statements. 1040ez.com Canceled checks. 1040ez.com Bank statements. 1040ez.com Financial account statements as proof of payment. 1040ez.com If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. 1040ez.com These include account statements prepared for the financial institution by a third party. 1040ez.com These account statements must be legible. 1040ez.com The following table lists acceptable account statements. 1040ez.com IF payment is by. 1040ez.com . 1040ez.com . 1040ez.com THEN the statement must show the. 1040ez.com . 1040ez.com . 1040ez.com Check Check number. 1040ez.com Amount. 1040ez.com Payee's name. 1040ez.com Date the check amount was posted to the account by the financial institution. 1040ez.com Electronic funds transfer Amount transferred. 1040ez.com Payee's name. 1040ez.com Date the transfer was posted to the account by the financial institution. 1040ez.com Credit card Amount charged. 1040ez.com Payee's name. 1040ez.com Transaction date. 1040ez.com Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. 1040ez.com You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. 1040ez.com Tax returns. 1040ez.com Keep copies of your filed tax returns. 1040ez.com They help in preparing future tax returns and making computations if you file an amended return. 1040ez.com Keep copies of your information returns such as Form 1099, Schedule K-1, and Form W-2. 1040ez.com How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. 1040ez.com Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. 1040ez.com A period of limitations is the period of time after which no legal action can be brought. 1040ez.com Generally, that means you must keep your records for at least 3 years from when your tax return was due or filed or within 2 years of the date the tax was paid, whichever is later. 1040ez.com However, certain records must be kept for a longer period of time, as discussed below. 1040ez.com Employment taxes. 1040ez.com If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. 1040ez.com Assets. 1040ez.com Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. 1040ez.com You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure your basis for computing gain or (loss) when you sell or otherwise dispose of the property. 1040ez.com You may need to keep records relating to the basis of property longer than the period of limitation. 1040ez.com Keep those records as long as they are important in figuring the basis of the original or replacement property. 1040ez.com Generally, this means as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. 1040ez.com For example, if you received property in a nontaxable exchange, you must keep the records for the old property, as well as for the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. 1040ez.com For more information on basis, see chapter 6. 1040ez.com Records for nontax purposes. 1040ez.com When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. 1040ez.com For example, your insurance company or creditors may require you to keep them longer than the IRS does. 1040ez.com Prev Up Next Home More Online Publications
Understanding your CP03C Notice
You received a tax credit (called the First-Time Homebuyer Credit) for a house you purchased. You may need to file a form to report a change in ownership to the house you purchased.
What you need to do
You may want to...
Answers to Common Questions
How much is the repayment amount?
The repayment amount is equal to the full amount of the credit you received minus any credit repayments you may have already made.
Do I have to repay the credit if my home was is destroyed, condemned, or disposed of under threat of condemnation and I acquired a new home within two years?
You do not have to repay the credit if you purchased a new main home within two years of the event.
How and when do I repay the credit?
You must file a Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with your tax return for the year in which the change occurred. You can report your change in ownership status by checking the appropriate box in Part III (Disposition or Change in Use of Main Home for Which the Credit Was Claimed) of the form.
You have to repay the credit by including it as additional tax on the federal income tax return for the year in which the home stopped being your main home. For example, a taxpayer who reports a change of ownership occurring in 2010 must repay the first-time homebuyer credit, minus any payments they might have made to repay the credit, in their 2010 tax return.
I heard that taxpayers didn't have to repay the First Time Homebuyers Credit any longer. Didn't the law change?
The law changed for home purchases in 2009 and 2010, which now have no 15-year repayment requirement. The law did not change the repayment requirement for purchases for home that cease being a main home.
What if my spouse has died, do I have to repay the entire amount of the credit?
If, unfortunately, a spouse is deceased, the remaining spouse only has to repay half of the remaining credit balance: we won't seek repayment for the deceased spouse's half. For example, the surviving spouse will owe only $3,750 for a $7,500 first-time homebuyer credit taken on an earlier joint income tax return.
What if I don't have to pay any additional tax, do I still have to report the change in my ownership status?
Yes, even if you don't have to pay any additional tax, you still need to complete a Form 5405 to report the disposition of your property.
Page Last Reviewed or Updated: 14-Mar-2014
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