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Tax Forms Retention Guide: How long is long enough?

April 15 has come and gone and another year of tax forms and shoeboxes full of receipts is behind us. But what should be done with those documents after your check or refund request is in the mail? How Long Should I Keep My Tax Records Michigan?

Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.

However, if the IRS believes you have significantly underreported your income (by 25 percent or more), it may go back six years in an audit. If there is any indication of fraud, or you do not file a return, no period of limitation exists.To be safe, use the following guidelines.

Business Documents To Keep For One Year

• Correspondence with Customers and Vendors
• Duplicate Deposit Slips
• Purchase Orders (other than Purchasing Department copy)
• Receiving Sheets
• Requisitions
• Stenographer’s Notebooks
• Stockroom Withdrawal Forms

Business Documents To Keep For Three Years

• Employee Personnel Records (after termination)
• Employment Applications
• Expired Insurance Policies
• General Correspondence
• Internal Audit Reports
• Internal Reports
• Petty Cash Vouchers
• Physical Inventory Tags
• Savings Bond Registration Records of Employees
• Time Cards For Hourly Employees

Business Documents To Keep For Six Years

• Accident Reports, Claims
• Accounts Payable Ledgers and Schedules
• Accounts Receivable Ledgers and Schedules
• Bank Statements and Reconciliations
• Cancelled Checks
• Cancelled Stock and Bond Certificates
• Employment Tax Records
• Expense Analysis and Expense Distribution Schedules
• Expired Contracts, Leases
• Expired Option Records
• Inventories of Products, Materials, Supplies
• Invoices to Customers
• Notes Receivable Ledgers, Schedules
• Payroll Records and Summaries, including payment to pensioners
• Plant Cost Ledgers
• Purchasing Department Copies of Purchase Orders
• Records related to net operating losses (NOL’s)
• Sales Records
• Subsidiary Ledgers
• Time Books
• Travel and Entertainment Records
• Vouchers for Payments to Vendors, Employees, etc.
• Voucher Register, Schedules

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you’ll want to retain these documents indefinitely.

• Audit Reports from CPAs/Accountants
• Cancelled Checks for Important Payments (especially tax payments)
• Cash Books, Charts of Accounts
• Contracts, Leases Currently in Effect
• Corporate Documents (incorporation, charter, by-laws, etc.)
• Documents substantiating fixed asset additions
• Deeds
• Depreciation Schedules
• Financial Statements (Year End)
• General and Private Ledgers, Year End Trial Balances
• Insurance Records, Current Accident Reports, Claims, Policies
• Investment Trade Confirmations
• IRS Revenue Agent Reports
• Journals
• Legal Records, Correspondence and Other Important Matters
• Minutes Books of Directors and Stockholders
• Mortgages, Bills of Sale
• Property Appraisals by Outside Appraisers
• Property Records
• Retirement and Pension Records
• Tax Returns and Worksheets
• Trademark and Patent Registrations

Personal Documents To Keep For One Year

While it’s important to keep year-end mutual fund and IRA contribution statements forever, you don’t have to save monthly and quarterly statements once the year-end statement has arrived.

Personal Documents To Keep For Three Years

• Credit Card Statements
• Medical Bills (in case of insurance disputes)
• Utility Records
• Expired Insurance Policies

Personal Documents To Keep For Six Years

• Supporting Documents For Tax Returns
• Accident Reports and Claims
• Medical Bills (if tax-related)
• Sales Receipts
• Wage Garnishments
• Other Tax-Related Bills

Personal Records To Keep Forever

• CPA Audit Reports
• Legal Records
• Important Correspondence
• Income Tax Returns
• Income Tax Payment Checks
• Property Records / Improvement Receipts (or six years after property sold)
• Investment Trade Confirmations
• Retirement and Pension Records (Forms 5448, 1099-R and 8606 until all distributions are made from your IRA or other qualified plan)

Special Circumstances

• Car Records (keep until the car is sold)
• Credit Card Receipts (keep until verified on your statement)
• Insurance Policies (keep for the life of the policy)
• Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
• Pay Stubs (keep until reconciled with your W-2)
• Sales Receipts (keep for life of the warranty)
• Stock and Bond Records (keep for 6 years beyond selling)
• Warranties and Instructions (keep for the life of the product)
• Other Bills (keep until payment is verified on the next bill)
• Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)

Questions? Contact your trusted Michigan tax pros!

How Long Should I Keep My Tax Records Michigan? – 2022

Welcome to ATS Advisors, your trusted Michigan tax professionals!

Listed here is a free Michigan Income Tax Calculator: CLICK HERE

Questions? Contact ATS Advisors today!

What You Need To Know About Michigan State Taxes

The state of Michigan requires you to pay taxes if you’re a resident or nonresident that receives income from a Michigan source. The state income tax rate is 4.25%, and the sales tax rate is 6%.

Michigan Income Tax Brackets and Rates

Michigan has a flat tax rate of 4.25% for 2021, meaning everyone pays the same state income tax regardless of their income.

Located in the State of Michigans 2021 Taxpayer guide is 5 Michigan Tax Exemptions You Didn’t Know About!

Lets begin…

PRINCIPAL RESIDENCE EXEMPTION: A principal residence is exempt from taxes levied by a local school district for operating purposes of up to 18 mills. A homeowner’s principal residence is defined as “the one place where an owner of the property has his or her true, fixed, and permanent home to which, whenever absent, he or she intends to return and that shall continue as a principal residence until another principal residence is established.” Property owners may claim only one exemption. A married couple, filing income tax returns jointly, are generally entitled to no more than one principal residence exemption. However, there are exceptions to these rules. The law allows a temporary, additional exemption for up to three years on an unoccupied homestead listed for sale. Homeowners with a principal residence exemption currently residing in a nursing home, assisted living facility, or other location while convalescing and members of the armed services absent on active duty may maintain the exemption so long as they continue to own and maintain the property, they do not establish a new primary residence, and the property is not used for most commercial and business purposes. A homeowner who vacates their home because of damage or destruction may maintain the exemption for up to three years as long as they demonstrate an intent to move back in. To be eligible for the homeowner’s principal residence property exemption, a taxpayer must file an affidavit with the local tax collecting unit on or before June 1 for an exemption from the immediately succeeding summer tax levy and November 1 for an exemption from the immediately succeeding winter tax levy. Once filed, exemptions are valid in future years until rescinded. A denial of this exemption may be appealed to the Michigan Tax Tribunal. The appeal must be filed within 35 days from date of notice.

FARMLAND (QUALIFIED AGRICULTURAL) PROPERTY EXEMPTION: Farmland may be exempt from taxes levied by a local school district for operating purposes of up to 18 mills. Farmland must be determined to be qualified agricultural property. The state has defined qualified agricultural property as “unoccupied property and related buildings classified as agricultural, or other unoccupied property and related buildings located on that property devoted primarily to agricultural use.” If a property is classified as agricultural for assessment purposes, a property owner does not need to take any action to receive the exemption, unless requested by the local assessor. Otherwise, a property owner must claim an exemption by filing an affidavit with the local tax collecting unit on or before May 1. In some cases, a partial exemption may be approved if part of the property is used for non-agricultural purposes. An exemption remains in place unless withdrawn or until rescinded. A denial of an exemption may be appealed to the local board of review. A board of review decision may be appealed to the Michigan Tax Tribunal within 35 days from the decision.

POVERTY EXEMPTION: A person may be eligible to request a poverty exemption from property taxes if they, at a minimum, own and occupy the property as their homestead, demonstrate evidence of ownership and identification, and meet poverty income standards. The local board of review makes the determination if the exemption should be granted or denied based on the guidelines for both income and asset levels adopted by the local unit of government. To be eligible for an exemption, a homeowner must apply to the local assessing unit after January 1 but before the day prior to the last day of the board of review. In certain jurisdictions, where permitted by resolution of the local governmental unit, a person who received the exemption in 2019, 2020, or both, or was approved for the first time in 2021, and receives a fixed income from public assistance may receive the exemption for up to 3 additional years without reapplication. March board of review denials may be appealed to the Michigan Tax Tribunal by the end of July. July and December board of review denials must be appealed to the Michigan Tax Tribunal within 35 days of notice.

DISABLED VETERANS EXEMPTION: Property owned and used as a homestead by a disabled and honorably discharged veteran is exempt from Michigan property taxes. To be eligible for this exemption, a disabled veteran must be determined by the U.S. Department of Veterans Affairs to be permanently or totally disabled as a result of military service and entitled to veterans’ benefits at the 100% rate, have a certificate from the U.S. Veterans Administration certifying that they are receiving or have received pecuniary assistance due to disability for special adaptive housing, or be rated by the U.S Department of Veterans Affairs as individually unemployable. This exemption is also available to an unremarried surviving spouse of a disabled veteran. An affidavit to qualify for this exemption must be filed annually with the local tax unit. A claim for the exemption is reviewed by the local board of review. A board of review decision may be appealed to the Michigan Tax Tribunal.

FARMLAND DEVELOPMENT RIGHTS AGREEMENT OR EASEMENT EXEMPTION: Property owners who own farmland covered by a development rights agreement or easement with the state are exempt from special assessments for sanitary sewers, water, lights, and nonfarm drainage on land covered by the agreement or easement. The exemption does not apply to assessments in place prior to entering into an agreement or easement. In addition, the property owner cannot take advantage of the services financed through the assessment on the exempted land and may be required to pay the assessment if the agreement or easement is ended.

As always, If you have any tax questions, please never hesitate to contact us!

Michigan Tax Exemptions You Didn’t Know About – 2021

Listed below is some useful Tax Information for Michigan Students:

American Opportunity Credit

• Maximum Credit: Up to $2,500 per eligible student annually
• Limit on modified adjusted gross income: $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er)
• Refundable or nonrefundable: 40 percent of credit may be refundable; the rest is nonrefundable
• Number of years of postsecondary education: Available only for the first four years of postsecondary education
• Number of tax years credit available: Available only for four tax years per eligible student, including any year(s) Hope credit was claimed
• Type of degree required: Undergraduate or graduate degree
• Number of courses: Student must be enrolled at least half time for at least one academic period that begins during the year
• Felony drug conviction: No felony drug convictions on student’s records
• Qualified expenses: Tuition and fees required for enrollment; course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify

Lifetime Learning Credit

• Maximum Credit: Up to $2,000 credit per return
• Limit on modified adjusted gross income: $160,000 if married jointly; $80,000 if single, head of household, or qualifying widow(er)
• Refundable or nonrefundable: Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
• Number of years of post-secondary education: Available for all years of post-secondary education and for courses to acquire or improve job skills
• Number of tax years credit available: Available for an unlimited number of years
• Type of degree required: Undergraduate or graduate degree or non-degree courses to acquire or improve job skills
• Felony drug conviction: Felony drug convictions are permitted
• Qualified expenses: Tuition and fees required for enrollment, including amounts required to be paid to the institution for course-related books, supplies, and equipment

Student Loan Interest Deduction

• Maximum benefit: You can reduce your income subject to tax by up to $2,500
• Loan qualifications: Your student loan must have been taken out solely to pay qualified education expenses and cannot be from a related person or made under a qualified employer plan.
• Student Qualifications: The student must be a taxpayer, taxpayer’s spouse, or taxpayer’s dependent and enrolled at least half-time in a degree program.
• Time limit on deduction: You can deduct interest paid during the remaining period of your student loan.
• Limit on modified adjusted gross income: $175,000 if married filing a joint return; $85,000 if single, head of household, or qualifying widow(er)

Coverdell Education Savings Account

A Coverdell ESA is set up to pay the qualified education expenses of a designated beneficiary.

Where can it be established?

It can be opened in the United States at any bank or other IRS-approved entity that covers Coverdell ESAs.

Who can have a Coverdell ESA?

Any beneficiary who is under the age 18 or is a special needs beneficiary.

Who can contribute to this ESA?

Generally, any individual (including a beneficiary) whose modified adjusted gross income for the year is less than the IRS limits.

Are distributions tax free?

Yes, if the distributions are not more than the beneficiary’s adjusted qualified education expenses for the year.

Education Savings Bonds

You may be able to cash in qualified US savings bonds without having to include in your income some or all of the interest earned on the bonds, if you meet the following conditions:

• you pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return;
• your modified adjusted gross income is less than the IRS limits; and
• your filing status is not married filing separately.

Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.

A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Scholarships and Fellowships are tax free only if

• the student is a candidate for a degree at an eligible educational institution; and
• the aid is used to pay for qualified education expenses:
  • tuition and fees required to enroll or attend an eligible educational institution, or
  • course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Expenses don’t include room and board, travel, research, clerical help, or equipment and other expenses that are not required for enrollment or attendance.

Qualified Tuition Program (QTP)

• Qualified tuition programs are also called “529 plans.”
• States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution. Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student will be entitled to a waiver or a payment of qualified education expenses. You cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
• The tax benefit of a QTP is that no tax is due on a distribution for a QTP unless the amount distributed is greater than qualified educational expenses.

Business Deduction for Work-Related Education

• If you are an employee and can itemize deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2 percent of your adjusted gross income.
• If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both tax and self-employment tax.
• Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the American Opportunity and Lifetime Learning credits. You may qualify for these benefits even if you do not meet the requirements listed above.

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

• The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
• The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it is

• needed to meet the minimum educational requirements of your present trade or business, or
• part of a program or study that will qualify you for a new trade or business.

If you have any questions please contact us today!

Those were our 9 Tax Tips for Small Businesses in Michigan! Hope you enjoyed.

If you have any questions regarding any of these tax tips, please reach out to ATS Advisors and talk with us today!