News from ECL Consulting, LLC - Simple Ways To Audit Your QuickBooks Activity

Last week, we talked about the 3-year rule for determing which financial documents to keep. This week, we give you a list of items you should hold on to.

Spring Cleaning: Tax Records You Can Throw Away: Part 2

Here's a Checklist of the Documents You Should Hold On To*

1. Capital gains and losses. Your gain is reduced by your basis -- your cost (including all commissions) plus, with mutual funds, any reinvested dividends and capital gains. But you may have bought that stock five years ago and you've been reinvesting those dividends and capital gains over the last decade. And don't forget those stock splits.

So you don't ever want to throw these records away until after you sell the securities. And then if you're audited, you're going to have to prove those numbers. So you'll need to keep those records for at least three years after you file the return reporting their sales.

2. Expenses on your home. Cost records for your house and any improvements should be kept until the home is sold. It's just good practice, even though most homeowners won't face any tax problems. That's because profit of less than $250,000 on your home ($500,000 on a joint return) isn't subject to taxes under tax legislation enacted in 1997.

If the profit is more than $250,000 ($500,000 on a joint return), or if you don't qualify for the full gain exclusion, then you're going to need those records for another three years after that return is filed. Most homeowners probably won't face that issue thanks to the 1997 tax law, but better safe than sorry.

3. Business real estate records. Non-residential real estate is now depreciated over 39 years. You could be audited on the depreciation up to three years after you file the return for the 39th year. That's a long time to hold onto receipts, but you may need to validate those numbers.

4. Employment, bank and brokerage statements. Keep all your W-2s, 1099s, brokerage and bank statements to prove income until three years after you file or longer if you need to. Don't even think about dumping checks, receipts, mileage logs, tax diaries and other documentation that substantiate your expenses.

5. Tax returns. Keep copies of your tax returns as well. You can't rely on the IRS to actually have a copy of your old returns. We recommend our clients keep tax records for 6 years.

The bottom line is that you've got to keep those records until they can no longer affect your tax return, plus the three-year statute of limitations.

6. Social Security Records. You will need to keep some records for Social Security purposes, so check with the Social Security Administration each year to confirm that your payments have been appropriately credited. If they're wrong, you'll need your W-2 or copies of your Schedule C (if self employed) to prove the right amount. Don't dump those records until after you've validated those contributions.

You can confirm your payments and estimate your future benefits by filing Form SSA-7004 with the Social Security Administration. You can download the form or apply online.

It may bring you some psychological satisfaction to review your financial journey from poverty to wealth. But if you still find some tax returns that were filed with Roman numerals, it's probably time to clean out your attic.

Did you know that ECL Consulting offers organizing services for your small business? Our Expert Organizers are experienced in developing systems for efficiently managing paper records & digital files, maximizing office space, process & project management, scheduling & time management. Contact us to learn more.

*Information supplied by IRS at the time of this newsletter and may be subject to change at any time.

Ask An Expert

Q: Is there a way to track changes made to my QuickBooks transactions?

A: In the past, QuickBooks had an optional Audit Trail feature that you could choose whether or not to enable. However, recent versions of the program automatically enable Audit Trail, so every change made to a transaction in QuickBooks is logged automatically.

Although this may seem Orwellian, you may find that you sometimes need to carry out forensic research on a particular QuickBooks transaction. In layman's terms, this means looking into who changed or deleted a transaction, determining what date the transaction changed and how the transaction looked before it was changed.

Here we'll discuss some of the audit reports that QuickBooks provides, as well as show you some easier ways to mine the data within these reports.

Expert tip: It's best to assign a separate user ID to each QuickBooks user. To do so, choose Company, Set up Users and Passwords, and then follow the onscreen prompts. Once you set it up, you'll be able to have accountability for every transaction entered or modified in QuickBooks.

Audit Trail Report
As we mentioned, the Audit Trail is automatically enabled in QuickBooks, and it cannot be disabled. To view the audit trail, choose Reports, Accountant & Taxes, and then Audit Trail.

Although the Audit Trail report defaults to today's date, you can easily change the date range at the top of the screen. As you might expect, this report may contain a lot of data, so you may need to trim down the data shown:

Click the Modify Report button.
Click on the Filters tab.
Choose Transaction Type from the Filter List, and then choose Multiple Transaction Types from the Transaction Type list. You can then select one or more transaction types to display.
Click OK twice to display the report.

Even with changing the filters and date range, you may still have a tough time navigating the report. You can easily export the report to Excel or another program so that you can carry out your research:

To export to Excel: Click the Export button at the top of the Audit Trail report screen, choose A New Excel Workbook, and then click Export.
To export to another program: The Export button also allows you to export the report to a CSV file, which means a comma-separated value format. This type of report is best viewed in a spreadsheet such as Excel.
If you don't have Excel available, choose File, Save As PDF, and then save the report to a PDF file. You should then be able to copy and paste the resulting report into the program of your choice or use the search feature within your PDF viewer; the free Adobe Acrobat Reader is a common choice.

Fraud alert: Perpetrators often generate checks or invoices under one vendor or customer ID, and then modify the accounting records to obfuscate their deed. Always review transactions with a Prior label carefully.

Next week, we will continue our discussion about deleted/ voided transactions.

Ever have an accounting, tax, QuickBooks or cash flow management question and didn't know who to ask? Now you can Ask An Expert! Email us your questions and we will print the question and the answer in our newsletter! No question is too big or too small.

Have you enjoyed this newsletter? Have any suggestions for things you'd like to see covered? Have a question for our resident Accounting Expert? Let us know by emailing askexpert@eclconsulting.com.

Each issue will cover different topics and have different features, so watch for us each Tuesday.

Remember, we provide accounting and cash flow solutions for successful companies -- yours!

Sincerely,

Eli Larriva
ECL Consulting, LLC
(520)241-0371
info@eclconsulting.com

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