STRATEGIC ISSUES...ONLINE

For week of December 13, 2004, Issue #191

 

Featured Articles:

1.  Check 21 - Proving Tax Deductions Without Cancelled Checks

2.  More Excerpts from "2004 Report to the Nation on Occupational Fraud and Abuse"

3.  Tech Question/Answer of the Week...

4.  Tax Deposit Rules for Small Businesses Simplified

5.  Compliance Calendar

 

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1.  Check 21 - Proving Tax Deductions Without Cancelled Checks

 

The Check Clearing for the 21st Century Act (Check 21) became effective on October 28, 2004.  The bottom line on what this means for most consumers is that in time you won't be seeing any of your checks ever again after you send them off as payment with a bill or other statement.  Instead, Check 21 allows your bank to truncate each of your checks and create a new electronic negotiable instrument called a substitute check.  After doing this, your bank generally will be allowed to destroy your original check as long as it has updated its "customer agreement" to do so.

 

How does Check 21 change the way I am able to prove an expense to the IRS to be entitled to a tax deduction or credit?  The short answer is that, for most taxpayers, Check 21 means you will need to keep your past bank statements in good order.  The IRS reports it will accept bank statements that contain images of cancelled checks and/or substitute checks.  To be used as proof, an account statement must show the check number, amount, payee's name, and the date the check was posted.  A check image isn't required if the account statement itself covers all these items.  To keep track of your payments more easily for tax purposes, you should also maintain a careful check register.  That way, you'll know where to look if you are audited.

 

Important Details

 

Banks are not being forced to jump on board to the new electronic Check 21 system.  However, most have already done so and the rest are predicted to follow soon.  If you receive canceled checks with your account statement, Check 21 for the time being will mean that you might begin to receive a mixture of canceled original and substitute checks.  If you receive image statements (pictures of several checks on a single page), you also may notice that some of the pictures are of substitute checks. 

 

Check 21 says you can use a substitute check as proof of payment because it is legally the same as the original check.  The IRS, therefore, must accept your substitute check as proof of payment. 

 

Online Banking

 

What if you do all your banking and bill paying online?  The same rules apply.

 

As a precaution, however, we suggest that you download and print out your bank statements at the end of the year.  That way, even if you are audited several years from now, you'll have a record that's easy to access.

 

Please do not hesitate to call our office if you have any further concerns about Check 21.

 

 

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2.  More Excerpts from "2004 Report to the Nation on Occupational Fraud and Abuse"

-Association of Certified Fraud Examiners

 

The Perpetrators' Criminal Histories

 

"As was the case in our previous studies, most of the perpetrators we encountered in this survey were first-time offenders.  This finding is consistent with other studies, particularly the research of Dr. Donald Cressey, which suggests that most occupational fraudsters are not career criminals.  There were 262 cases in which the respondent was able to provide information about the past criminal history of the perpetrator, and in 83% of those cases the perpetrator had never been charged or convicted prior to the offense in question.  This number actually reflected a slight decline from the results of our 2002 study.  The number of perpetrators with prior convictions rose slightly, from 9% in 2002 to 12% in 2004."

 

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3.  Tech Question/Answer of the Week....

 

Q:  I know there's a program built into Windows that controls what programs automatically load at startup.  What is it and how do I launch it?

 

A:  It's called the Microsoft System Configuration Utility.  To launch it, go to the Start Menu, select "Run..." and type "MSCONFIG" in the box that appears.  Once the utility starts up, click on the right-hand tab called "Startup" to enable and disable various programs that might launch when your PC starts.

 

But, a word of caution to be extremely careful when disabling programs as the process your computer follows when starting up could be affected causing an improper startup.  So, be careful.

 

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4.  Tax Deposit Rules for Small Businesses Simplified

 

In a move intended to ease the burden on small businesses, the IRS announced that it is increasing the minimum threshold for Federal Unemployment Tax Act (FUTA) deposits.

 

Effective January 1, 2005, employers are required to make a quarterly deposit for unemployment taxes if the accumulated tax exceeds $500.

 

The maximum amount the IRS collects from employer per employee is $56 per year, if the employer timely made state unemployment tax payments.  The current $100 threshold requires most employers with two or more employees to make at least one federal tax deposit per year.  Raising the requirement, the IRS explained, will reduce the burden for employers with eight employees or less by eliminating their requirement to make up to four FUTA tax deposits yearly.

 

The $100 minimum deposit threshold was established in 1970.

 

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5.  Compliance Calendar

 

December 15

-Employers deposit social security, Medicare, and withheld income tax for payments on December 8, 9, and 10.

 

-Monthly depositors deposit Social Security, Medicare and income tax payments for November.

 

December 17

-Employers deposit social security, Medicare, and withheld income tax for payments on December 11, 12, 13, and 14.

 

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