Rules of Record Retention

Clients often ask how long they need to keep particular records. The answer is not as clear-cut as one may think. In general, the records should be kept for as long as they may be needed for federal and state tax returns, or for other possible legal reasons.

Records supporting an income or deduction item on a filed tax return need to be kept until the Period of Limitations runs out for the return. This is the period of time in which a return may be amended or a claim for credit or refund may be filed. More information can be found in IRS Publication 583.

Other business and personal records must be kept for a period of time after they are no longer needed. It should be noted that similar documents and records may be subject to different record retention rules. For example, employee records should typically be kept for seven years. However, for an employee’s personnel records, the seven-year clock begins ticking after termination.

There are many business documents, and they are subject to a variety of retention years. Several online websites offer retention guidelines; however, they may not be updated with the most current retention regulations. Please use this table as a general guideline.

Here is another good example. A recent IRS audit, high priority goal, is for S corporation shareholders to prove their stock basis. This could entail keeping records of capital contributions and the related canceled checks going back literally decades. So be careful what you throw away!

Fortunately, the IRS allows for the use of electronic storage of records. The storage requirements that apply to hard copy systems apply to the electronic storage system as well. The files and documents must be indexed, stored, preserved, and retrievable in a legible format. More information can be found in IRS Revenue Procedure 97-22.

Whether hard copy or electronic, hanging on to unnecessary records will fill up storage and cost money. A records management program, which includes state and federal retention schedules, will help alleviate excess and maintain control of your records. Contact the experts at KT with any record retention questions, we are always here to help.

June 14, 2023

Inflation Reduction Act: Fund the IRS

It isn’t often that I cut articles out of the newspaper anymore. In fact, just reading that sentence makes me want to check the closets for hidden VHS and cassette tapes and throw them out. That said, I cut out an op-ed by Kent Bush of the Rapid City Journal last week. It was a great commentary on the IRS funding provisions of the Inflation Reduction Act. 

The numbers that seem to have struck a note with my friends are the 87,000 new IRS agents and $80 billion dollars in new funding. Thoughts about these numbers opens polite phone calls and friendly client chats. I’d like to tell you why these numbers should hopefully not make law-abiding taxpayers worried:

  • The IRS has stated that the 87,000 number is primarily to keep up with IRS employee retirements and a greying workforce, and to provide more customer service employees. It is unclear how many incremental new agents will be hired, but the IRS has stated there won’t be a large influx of new auditors.
  • Most citizens calculate their income appropriately and pay their fair share of taxes. These citizens should have no worries if they are audited. On the other hand, tax dodgers should never feel comfortable operating in a nefarious way no matter how thinly funded the IRS might be. Also, It is simply good business for the government to ensure that people who do not pay their fair share in taxes should have some chance of being audited.

The IRS has promised that this funding will not be used to increase audits on small businesses or individuals making less than $400,000 per year. Their focus will apparently be on wealthier taxpayers. We hope this promise is kept. We understand some people are skeptical of this promise.

Much of the funding will be used to simply improve the IRS’s terrible customer service:

  • The IRS has stacks of unanswered mail and the paperwork deluge is burying the agency. A quick google search for “IRS cafeteria” will provide a visual. 
  • The IRS answers only between 10-20% of calls received. It can take multiple tries and hours on hold to reach an agent. 
  • The unanswered mail and phone calls compound on themselves to create greater problems. For example, if we have to paper file an amended return for 2020 for a taxpayer and the return does not get processed timely, it can cause huge issues with a timely 2021 filing. Picture a wreck that occurs in the first lap of a NASCAR race and the next lap starts without clearing the track. The wreck compounds itself.

If due to the Inflation Reduction Act, the IRS gets a boost in funding, the everyday taxpayer should not necessarily worry about IRS Agents knocking down their doors. If the funding leads to availability of agents for phone call, or to open and reply to mail in a timely manner, your accountant will be happy and you should be too.

August 24, 2022

Meet Our New CEO

We are here for you.

This last year has been a challenge to everyone.  While 2020 made us hunker down and focus on just treading water, it was also so much about change and innovation.  We had to learn to support our KT staff and clients in a highly dynamic and unstable environment.  We put incredible demands on our team, and they rose to the challenge.

As accounting professionals, we saw a shift in clients’ needs.  We focused on being advisors helping you navigate the shifting deadlines and new tax laws.   We no longer just offer tax advice and compliance services; we are navigating all kinds of new regulations the government has thrown at businesses and non-profits.  The changes such as filing postponements, payroll tax credits, PPP loan application, and retirement law changes have disrupted our normal business practices and have brought challenges and opportunities to our client base. 

I am stepping into the role of CEO at Ketel Thorstenson, LLP in a time of enormous change—and this year we celebrate our firm’s legacy, our 85th anniversary!  As I look at the firm hitting its 85th year in business, I am reminded we did not age complacently to get here.  We have evolved and continue to adapt to be the firm which our employees and communities need.   I am honored to carry out the KT tradition and manage the next years of transformation. 

I also want to thank Denise Webster for her many contributions as Managing Partner at KT and I look forward to this next chapter of her career as she goes back to focus on client service.  Denise has been a supportive mentor through this transition process.  

As we start this phase of our journey together, I wanted to share some background on what inspires and motivates me.

Who am I?

I’ve been married for sixteen years to Erik Braun, and we have two middle school aged daughters and a dog.  I was raised by immigrant parents in New Jersey—-I am still fluent in Croatian!  I love to read, do crossword puzzles, and host dinner parties.   

Why am I here?

My husband and I moved to Rapid City, SD when we were married, to test out living in his hometown.  I joined KT from a Big 4 accounting firm.  Sixteen years and countless remodels later we are still in our starter home because we can’t bear to leave what we found in this community.  I believe over the next decade that our industry and our world will continue to change, and I want to be here to shape it.  There will be new opportunities open to our firm that we have not had before.

What am I grateful for?

I am forever grateful for my family and my support system.  I’m grateful that I found my way into this firm sixteen years ago and that it has continued to be a place full of inspired and innovative professionals.  I’ve been lucky to be able to be in a place where I can call clients and coworkers friends.

September 24, 2021

Employee Retention Tax Credit (ERTC) is it for me?

The Employee Retention Tax Credit (ERTC) is one of the most beneficial provisions of the 2021 Consolidated Appropriations Act (the Act) signed into law on December 27, 2020. Prior to the Act, most businesses had been ineligible to claim the ERTC in 2020 because they received a PPP loan. Also, the ERTC is now extended to June 30, 2021.  You might be surprised to find your business is eligible.

What is the ERTC? It is a fully refundable payroll tax credit for small businesses which experienced either (A) a significant decline in revenues OR (B) were subject to a government forced full or partial shut-down of operations.

What is a small employer? Small employers which have less than 500 employees. However, the credit is significantly limited for employers with more than 100 employees.

Who is Eligible for the ERTC? To claim this credit only one of the following two criteria must be met:

  1. Operations were fully or partially shut down as a result of orders from a governmental authority
  2. There was a significant decline in 2020 gross receipts when compared to 2019. This is defined as a 50% decline in 2020 and a 20% decline in 2021,as compared to the prior year’s quarter.

Can you claim the ERTC if you receive a PPP Loan? Yes. 

Can the same wages be used for the ERTC and PPP forgiveness? No. 

When do I need to claim this Credit? The credit is claimed on forms 941 or 943. Amended forms can be filed up to three years after their original due date. You have three years to amend these forms to claim the credit. There is no rush.

What qualifies as a partial shut-down order? The order must be issued by a government and mandate a business MUST shut down or limited.  The IRS FAQs issued in March seem clear that the governmental orders cannot be a “should” statement.  Modifications to business operations to meet social distancing requirements can constitute a partial shut-down if the restrictions have more than a nominal effect on business operations. For example table spacing requirements in restaurants constitute a partial shutdown.

Our KT headquarters is in the Mt. Rushmore state. Our governor issued a “should” stay at home order. However, some local governments issued “must” orders. For example, Rapid City closed bars and related businesses with a “must” order from March 27th to April 8th and then expanded the order on 4/22 to 7/31 to include spacing requirements for bars, restaurants, salons, gyms, and related establishments.  

Other business owners are left scratching their heads wondering if a shut down order applied to them. For example, the SD State Board of Dentistry issued an order to dental clinics mandating compliance with the Governor’s “should” order. The dental board order was a “must” order, but the Governor’s order was a “should.”  The IRS regulations have not clarified whether a state agency qualifies as a “government.”  We are waiting on more guidance from the IRS, which should come in the next few weeks.

We know our businesses have been impacted by this pandemic. We are keeping a close eye out on new developments as they are presented. There is plenty of time to amend forms to claim these credits.  KT is ready to assist with calculations and can help you segregate wages for ERTC from wages used in the PPP loan forgiveness.  We have a team versed in the details with the ability to prepare a credit study and amend your returns.

If you have questions, email the experts at KT.
ERTC Team:
Sarah Davis[email protected]
Nina Braun: [email protected]
Todd Hoese: [email protected]

February 17, 2021

Business Summary Video Link of the COVID-19 Relief Bill

At KTLLP we continue to comb through the massive Consolidated Apportions Act (CAA) (over 5,500 pages), and the economic relief impact it will have on Americans and businesses amid the ongoing coronavirus pandemic. We aim to keep you informed as we learn more.

Nina Braun, CPA, CFE, Partner with Ketel Thorstenson reviews some key takeaways for businesses from the bill signed in December 2020.

Click the link to watch the video. Sit back for 6 minutes, have a cup of coffee or some lunch and make it productive and potentially profitable with some tax tips.

January 5, 2021

Internal Controls Every Small Business Should Have

According to the Association of Certified Fraud Examiners, businesses with fewer than 100 employees have the highest percentage of fraud instances. 

Every small business should have some basic internal controls to help mitigate business risks, including employee fraud and accounting mistakes.   Many small businesses rely on one person to do all the accounting, and do not have enough staff to segregate duties, but even a relatively small business can have some effective fraud deterring processes.  

Five key controls to consider:

  • Review monthly bank statements, including cancelled checks. This forces the owner to keep a close watch on expenses. When reviewing cancelled checks and electronic payments, make sure to know who is being paid and verify the amounts are valid expenses of the business. Even if you sign the checks, unauthorized transfers or payments may come through the bank.
  • Sign checks yourself.  If your schedule doesn’t allow for check signing, limit the number of individuals with authority to sign checks. Signature stamps are recommended.
  • Review all credit and debit card statements. All employees should be required to keep detailed receipts to substantiate charge transactions.
  • Conduct a background check before hiring. Employees who handle cash, payroll, and finances should be screened.  Consider conducting a credit check on employees who handle cash.
  • Monitor incoming cash.  For point of sale transactions, count the cash drawer each day and log the cash over or short.  For payments received at the office, keep track of the mail, and watch the accounts receivable listing for long past due accounts. 

If you have a small office or your schedule keeps you away from the finances, you may consider employee theft insurance.  For a small cost, you can have insurance protect you from major loss.

A few key controls can keep your accounting from getting away from you, and keep your money safe.

September 30, 2019

Affordable Care Act: 2015 Reporting Required

Nina009Beginning in 2015, under the Affordable Care Act, applicable large employers (ALEs) with over 50 full-time equivalent employees should be aware of the new filing requirements with the IRS.  All ALEs are required to file forms 1094-C and 1095-C.  Form 1095-B will be filed by employers offering health insurance to its employees. These forms will need to be provided to the companies’ full-time employees by January 31.  The timing is similar to Form W-2.

For companies offering health insurance to its employees through a group plan, Form 1095-B will be prepared by the insurance company.  Form 1095-B summarizes the number of months individuals were covered by a health insurance plan.  It is similar to Form 1095-A which was sent out to individuals covered in 2014 on the federal or state insurance exchanges.

ALEs are required to file forms 1094-C and 1095-C.  Form 1094-C is a summary form, similar to Form W-3.  It is used to summarize the number of 1095-Cs filed and provide aggregate information for a controlled group.  Form 1095-C is provided to each full-time employee to whom health insurance coverage should have been offered under the ACA regardless if the employee receives the health coverage.  1095-Cs list information such as number of months the employee (and their dependents if self-insured) are covered, the lowest cost monthly premium for self-only insurance, and safe harbor code (if applicable).

The penalty for non-filing has been increased and can be as much as $500 per form.

Most software needs to be upgraded or add-on packages need to be purchased to prepare these forms.  KTLLP has the ability to assist in filing forms 1094-C and 1095-C on your behalf. Please call Nina, Kevin or Jennifer on the ACA Team with any questions.

September 10, 2015

Reimbursing for Health Insurance

Nina009Prior to the final Affordable Care Act (ACA) regulations, it wasn’t uncommon for employers to reimburse employees for health insurance if the employee was insured elsewhere.  Employers treated it as a benefit if they did not offer health insurance or it was used to encourage employees to find insurance elsewhere.

The final ACA regulations have clarified this is no longer an option for employers.  The only allowable pre-tax reimbursement is through the employer’s sponsored group health plans.  If you do not offer health insurance, you cannot reimburse employees pre-tax for health insurance.

Many employers who previously reimbursed for this benefit are scrambling to find ideas to compensate employees for this lost benefit.  The good news is employers can continue to pay taxable bonuses to employees.  As an employer, you can gross up the previous benefit and make your employee whole through a bonus.  You cannot require this bonus be contingent on the employee having health insurance and you cannot require the employee show you proof of insurance to receive the bonus.  Call the Ketel Thorstenson ACA Team with any questions.

June 3, 2015