Once your 2024 tax return is in the hands of the IRS, you may be tempted to clear out file cabinets and delete digital folders. But before reaching for the shredder or delete button, remember that some paperwork still has two important purposes:

1. Protecting you if the IRS comes calling for an audit, and
2. Helping you prove the tax basis of assets you’ll sell in the future.

Keep the return itself — indefinitely.

Your filed tax returns are the cornerstone of your records. But what about supporting records such as receipts and canceled checks? In general, except in cases of fraud or substantial understatement of income, the IRS can only assess tax within three years after the return for that year was filed (or three years after the return was due). For example, if you filed your 2022 tax return by its original due date of April 18, 2023, the IRS has until April 18, 2026, to assess a tax deficiency against you. If you file late, the IRS generally has three years from the date you filed.

In addition to receipts and canceled checks, you should keep records, including credit card statements, W-2s, 1099s, charitable giving receipts, and medical expense documentation, until the three-year window closes.

However, the assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, if no return is filed, the IRS can assess tax any time. If the IRS claims you never filed a return for a particular year, a copy of the signed return will help prove you did.

Property-related and investment records

The tax consequences of a transaction that occurs this year may depend on events that happened years or even decades ago. For example, suppose you bought your home in 2009, made capital improvements in 2016, and sold it this year. To determine the tax consequences of the sale, you must know your basis in the home — your original cost, plus later capital improvements. If you’re audited, you may have to produce records related to the purchase in 2009 and the capital improvements in 2016 to prove what your basis is. Therefore, those records should be kept until at least six years after filing your return for the year of sale.

Retain all records related to home purchases and improvements even if you expect your gain to be covered by the home-sale exclusion, which can be up to $500,000 for joint return filers. You’ll still need to prove the amount of your basis if the IRS inquires. Plus, there’s no telling what the home will be worth when it’s sold, and there’s no guarantee the home-sale exclusion will still be available in the future.

Other considerations apply to property that’s likely to be bought and sold — for example, stock or shares in a mutual fund. Remember that if you reinvest dividends to buy additional shares, each reinvestment is a separate purchase.

Duplicate records in a divorce or separation

If you separate or divorce, be sure you have access to tax records affecting you that your spouse keeps. Or better yet, make copies of the records since access to them may be difficult. Copies of all joint returns filed and supporting records are important because both spouses are liable for tax on a joint return, and a deficiency may be asserted against either spouse. Other important records to retain include agreements or decrees over custody of children and any agreement about who is entitled to claim them as dependents.

Protect your records from loss.

To safeguard records against theft, fire, or another disaster, consider keeping essential papers in a safe deposit box or other safe place outside your home. In addition, consider keeping copies in a single, easily accessible location so that you can grab them if you must leave your home in an emergency. You can also scan or photograph documents and keep encrypted copies in secure cloud storage so you can retrieve them quickly if they’re needed.

We’re here to help

Contact us if you have any questions about record retention. Thoughtful recordkeeping today can save you time, stress, and money tomorrow.

When we prepare your tax return, we’ll check one of the following filing statuses: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). Only some people are eligible to file a return as a head of household. But if you’re one of them, it’s more favorable than filing as a single taxpayer.

To illustrate, the 2025 standard deduction for a single taxpayer is $15,000. However, it’s $22,500 for a head of household taxpayer. To be eligible, you must maintain a household that, for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent.

Tax law fundamentals

Who’s a qualifying child? This is one who:

• Lives in your home for more than half the year,
• Is your child, stepchild, adopted child, foster child, sibling, stepsibling (or a descendant of any of these),
• Is under age 19 (or a student under 24), and
• Doesn’t provide over half of his or her own support for the year.

If the parents are divorced, the child will qualify if he or she meets these tests for the custodial parent, even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

Can both parents claim head of household status if they live together but aren’t married? According to the IRS, the answer is no. Only one parent can claim head of household status for a qualifying child. A person can’t be a “qualifying child” if he or she is married and can file a joint tax return with a spouse. Special “tie-breaker” rules apply if the individual can be a qualifying child of more than one taxpayer.

The IRS considers you to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Don’t include medical care, clothing, education, life insurance, or transportation.

Providing your parent a home

Under a special rule, you can qualify as head of household if you maintain a home for your parent even if you don’t live with him or her. To qualify under this rule, you must be able to claim the parent as your dependent.

You can’t be married

You must be single to claim head of household status. Suppose you’re unmarried because you’re widowed. In that case, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you maintain the household. The joint rates are more favorable than the head of household rates.

If you’re married, you must file jointly or separately — not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain the household,” you’re treated as unmarried. If this is the case, you can qualify as head of household.

Contact us. We can answer questions about your situation.

When it’s time to consider your business’s future, succession planning can protect your legacy and successfully set up the next generation of leaders or owners. Whether you’re ready to retire, you wish to step back your involvement or you want a solid contingency plan should you unexpectedly be unable to run the business, exploring different succession strategies is key. Here are five options to consider, along with some of the tax implications.

 

1. Transfer directly to family with a sale or gifts

One of the most common approaches to business succession is transferring ownership to a family member (or members). This can be done by gifting interests, selling interests or a combination. Parents often pass the business to children, but family succession plans can also involve siblings or other relatives.

 

Tax implications:

Gift tax considerations. You may trigger the federal gift tax if you gift the business (or part of it) to a family member or if you sell it to him or her for less than its fair market value. The annual gift tax exclusion (currently $19,000 per recipient) can help mitigate or avoid immediate gift tax in small, incremental transfers. Plus, every individual has a lifetime gift tax exemption. So depending on the value of the business and your use of the exemption, you might not owe gift taxes on the transfer. Keep in mind that when gifting partial interests in a closely held business, discounts for lack of marketability or control may be appropriate and help reduce gift taxes.

Estate planning. If the owner dies before transferring the business, there may be estate tax implications. Proper planning can help minimize estate tax liabilities through trusts or other estate planning tools.

Capital gains tax. If you sell the business to family members, you could owe capital gains tax. (See “5. Sell to an outside buyer” for more information.)

 

2. Transfer ownership through a trust

Suppose you want to keep long-term control of the business within your family. In that case, you might place ownership interests in a trust (such as a grantor-retained annuity trust or another specialized vehicle).

Tax implications:

Estate and gift tax mitigation. Properly structured trusts can help transfer assets to the next generation with minimized gift and estate tax exposure. Trust-based strategies can be particularly effective for business owners with significant assets.

Complex legal framework. Because trusts involve legal documents and strict rules, working with us and an attorney is crucial to ensure compliance and optimize tax benefits.

 

3. Engage in an employee or management buyout

Another option is to sell to a group of key employees or current managers. This path often ensures business continuity because the new owners already understand the business and its culture.

Tax implications:

Financing arrangements. In many cases, employees or managers may not have the funds to buy the business outright. Often, the seller finances part of the transaction. While this can provide ongoing income for the departing owner, interest on installment payments has tax consequences for both parties.

Deferred payments. Spreading payments over time can soften your overall tax burden by distributing capital gains across multiple years, which might help you avoid being subject to top tax rates or the net investment income tax. But each payment received is still taxed.

 

4. Establish an Employee Stock Ownership Plan (ESOP)

An ESOP is a qualified retirement plan created primarily to own your company’s stock, and thus it allows employees to own shares in the business. It may be an appealing choice for owners interested in rewarding and retaining staff. However, administering an ESOP involves complex rules.

Tax implications:

Owner benefits. Selling to an ESOP can offer potential tax deferrals, especially if the company is structured as a C corporation and the transaction meets specific requirements.

Corporate deductions. Contributions to an ESOP are usually tax-deductible, which can reduce the company’s taxable income.

 

5. Sell to an outside buyer

Sometimes, the best fit is outside the family or current employees or management team. You might decide to sell to an external buyer — for example, a competitor or private equity group. If you can find the right buyer, you may even be able to sell the business at a premium.

If your business is structured as a corporation, you may sell the business’s assets or the stock. Sellers generally prefer stock (or ownership interest) sales because they minimize the tax bill from a sale.

Tax implications:

Capital gains tax. Business owners typically pay capital gains tax on the difference between their original investment in the business (their “basis”) and the sale price. The capital gains rate depends in part on how long you’ve held the business. Usually, if you’ve owned it for more than one year, you’re taxed at the applicable long-term capital gains rate.

Allocation of purchase price. If you sell the assets, you and the buyer must decide how to allocate the purchase price among assets (including equipment and intellectual property). This allocation affects tax liabilities for both parties.

 

Focus on your unique situation

Business succession planning isn’t a one-size-fits-all process. Each option has unique benefits and pitfalls, especially regarding taxes. The best approach for you depends on factors including your retirement timeline, personal financial goals and family or employee involvement. Consult with us to ensure you choose a path that preserves your financial well-being and protects the business. We can advise on tax implications and work with you and your attorney to structure the deal advantageously. After all, a clear succession plan can safeguard the company you worked hard to build.

If you made significant gifts to your children, grandchildren, or other heirs last year, it’s important to determine whether you’re required to file a 2024 gift tax return. And in some cases, even if it’s not required to file one, you may want to do so anyway.

Requirements to file

The annual gift tax exclusion was $18,000 in 2024 (increased to $19,000 in 2025). Generally, you must file a gift tax return for 2024 if, during the tax year, you made gifts:

• That exceeded the $18,000-per-recipient gift tax annual exclusion for 2024 (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $36,000 annual exclusion for 2024,
• That exceeded the $185,000 annual exclusion in 2024 for gifts to a noncitizen spouse,
• To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($90,000) into 2024,
• Of future interests — such as remainder interests in a trust — regardless of the amounts, or
• Of jointly held or community property.

Important: You’ll owe gift tax only if an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($13.61 million in 2024). As you can see, some transfers require a return even if you don’t owe tax.

Filing if it’s not required

No gift tax return is required if your gifts for 2024 consisted solely of tax-free gifts because they qualify as:

• Annual exclusion gifts,
• Present interest gifts to a U.S. citizen spouse,
• Educational or medical expenses paid directly to a school or health care provider, or
• Political or charitable contributions.

But you should consider filing a gift tax return (even if not required) if you transferred hard-to-value property, such as artwork or interests in a family-owned business. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 15

The gift tax return deadline is the same as the income tax filing deadline. For 2024 returns, it’s April 15, 2025. If you file for an extension, it’s October 15, 2025. But keep in mind that if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension. Contact us if you’re unsure whether you must (or should) file a 2024 gift tax return.