Best Practices for Business Document Retention

As a business, how long you need to keep tax and other records or documents always seems like more of a daunting question than it really should be. Whether you are a new employee and have inherited your predecessor’s file cabinets, or you have been tasked with developing your company’s record retention policy—looking through documents and deciding which you should toss or keep can often stop you in your tracks and completely derail your efforts.

Here we outline some general guidelines and best practices from a variety of sources that businesses can follow when they embark on some paper clean-up or look to create a record retention policy. Typically document retention guidelines indicate records should be kept for one, three, or seven years. However, it is important to remember that it’s essential to save nearly all documentation (either in paper or digital form) for a short period, and some records will need to be kept indefinitely.

Best Practices

Below are some general best practices as it relates to what types of documents to keep and for how long. As a business, it is important that your leadership discuss these best practices and develop and enforce a document or record retention policy, so all employees know what is expected. There are several federal agencies and different industries that may have more specific document retention requirements that need to be followed so it is imperative that any required policies in place that apply to your business are being followed.

  • Legal documents: Business formation records, deeds, patents and trademark registrations, property appraisals, bill of sale documents, and other ownership records should be kept indefinitely.
  • Business federal tax returns: Depending on the business, the IRS indicates tax returns and the related supporting documentation should be kept from three to seven years. It is best to keep federal tax returns, including payroll tax records, for seven years. However, if you don’t file a return or file a fraudulent return, the IRS recommends keeping records indefinitely as there is no statute of limitations for the IRS to audit that year’s return. Additionally, records related to the basis of property should be kept for the life of that property as they will be relevant in the year of the sale and for that year’s tax return.
  • Personnel records: The Society for Human Resources Management has outlined the federal record retention requirements for personnel records. This reference looks at hiring records, affirmative action plan records, payroll records/timesheets, Form I-9s, employee benefit records, background checks, tax records, safety data, Family and Medical Leave Act (FMLA) records, and other personnel-related records.
  • Payroll information: The Fair Labor Standards Act (FLSA) requires employers to keep payroll records for at least three years.
  • Accounting documents: Retain all small business accounting records applicable to your taxes, including depreciation schedules and year-end financial statements, for at least seven years. Also, as mentioned above, documents related to the basis of assets should be retained for the life of the asset plus seven years after the tax year they were sold or disposed of.
  • Insurance, permits, and licenses: Keep all permits, licenses, and insurance policy documents until you receive replacements for expired ones.
  • Bank statements: All business banking, credit card, and investment statements, as well as canceled checks, should be kept for a minimum of seven years, possibly longer, depending on your business or tax circumstances.
  • Hiring records: Keep job advertisements, applications, and resumes on file for at least one year. In some cases, related to qualified federal contractors, these documents should be kept for two years after they were created.

Illinois, along with a few other states, has adopted the Uniform Preservation of Private Business Records Act (UPPBRA) as its standard. The UPPBRA indicates that businesses should keep any records not under statute-specific retention periods for at least three years. So, for those records you are just not certain of, three-year retention is a minimum.

What Requires Record Retention

It should be noted that the following federal laws, acts, and agencies have their own requirements for record retention which may apply in your specific situation or to your documents. There may be additional state and local government agencies that have additional or stricter guidelines to consider as well.

  • Internal Revenue Service (IRS) (recordkeeping information from IRS)
  • Federal Insurance Contributions Act (FICA)
  • Americans with Disabilities Act (ADA)
  • Age Discrimination in Employment Act (ADEA)
  • Occupational Safety and Health Act (OSHA)
  • Employee Retirement and Income Security Act (ERISA)
  • Civil Rights Act of 1964
  • Fair Labor Standards Act (FLSA)
  • Family and Medical Leave Act (FMLA)
  • Equal Employment Opportunity Commission (EEOC)

Contact Us

You can find a variety of sources providing guidance and best practices on what should be kept and for how long. Use these as a starting point, but if you have questions as it applies to your business and your situation, we are happy to help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Sources: US Chamber of Commerce;;

Protecting the Dealership from Vendor Fraud

As business owners, you must rely on your employees and vendors to help your dealership succeed. Sometimes, those same vendors and individuals take advantage of situations to increase their own personal profits. Vendor fraud involves payments made to actual or fictitious vendors for personal gain. It is a lucrative industry that can take tens to hundreds of thousands of dollars from your bottom line.

Types of Vendor Fraud

There is a good chance your dealership has experienced some form of vendor fraud. While there are many types, most often, vendor fraud falls into the following three categories:

  • Internal employee fraud – an employee creates a fictitious vendor and bills for warranty work as that vendor, then collects the payment.
  • Outside vendor fraud – a vendor falsifies purchase price by creating a fictitious supplier, allowing them to increase their mark up on the part.
  • Collusion between an internal employee and outside vendor – employees receiving kickbacks for using specific vendors instead of finding the best priced/quality suppliers.

Minimizing the Risk of Vendor Fraud

Above are just a few examples of possible scenarios that could cost your dealership. Consider just how easy it would be to overlook a slight price increase or falsified third-party invoice at first glance. The good news is that internal controls can help prevent skimming or straight-out fraudulent invoices. Here we outline some steps to take to help minimize the changes of vendor fraud.

  1. Regular vendor audits will allow your dealership to dig into contracts and invoices and ensure everything is straightforward and aboveboard. While annual financial statement audits may take place, the purpose of an audit is not meant to identify issues of vendor fraud. That being said, when completing a vendor audit some additional steps can be taken to aid in identifying possible fraud, including:
    1. Examine tax filings for any Form 1099’s sent to your employees for ‘consulting fees.’
    2. Review freight invoices for unbilled and undelivered merchandise.
    3. Look at vendor-related party transactions.
    4. Review invoices as compared to the original contract signed.
    5. Visit vendor facilities to make sure they exist.
    6. If needed, consider working with fraud specialist.
  2. Establishing a thorough process for vetting and approving vendors allows management to understand potential concerns before signing any contracts. This may include
    1. Building a right-to-audit clause into contracts as a standard practice.
    2. Creating a Request for Information (RFI) that outlines the types of vendors you are looking for, what you need to be supplied, the price per unit you want to stay within, and delivery timeframes.
    3. Asking employees for any feedback on vendors they have worked with in the past.
    4. Organizing vendors, including the information you have collected and where they are in the approval process so that all information is in one easy-to-locate spot.
    5. Considering a software system for managing approved vendors.

While it may be easier to stick to how things have always been done, spending the time to put controls in place to prevent potential instances of vendor fraud is a necessary practice for protecting the dealership.

Contact Us

If you need assistance building out or implementing the processes, conducting a thorough audit of your vendors, or other follow up based on the information outlined above, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Inflation Reduction Act: Impact on Businesses

This week President Biden signed the Inflation Reduction Act (Act) into law. In addition to the energy efficient tax incentives for taxpayers, the $740 billion law raises revenue through a new minimum tax on large, profitable corporations and an excise tax on stock buybacks. With this new law there are several tax changes that will impact Chicago businesses and their owners. To help clients, prospects, and others Selden Fox has provided a summary of the key details below.

15% Corporate Alternative Minimum Tax

The new law imposes a new 15% corporate alternative minimum tax on the adjusted financial statement financial income of corporations with more than $1 billion of annual profit.

In its analysis of the Inflation Reduction Act, the Joint Committee on Taxation estimated that about 150 taxpayers would be subject to the corporate minimum tax annually. This provision is effective for tax years beginning after December 31, 2022.

Excise Tax on Corporate Stock Repurchases

The new law also imposes on each “covered corporation” a tax equal to 1% of the fair market value of any stock of the corporation that’s repurchased by the business during the tax year. A “covered corporation” is any domestic corporation with stock traded on an established securities market. The 1% excise tax applies to repurchases of stock after December 31, 2022.

Increase in Qualified Small Business Payroll Tax Credit for Research

Another provision in the law boosts the payroll tax credit for increasing research activities. Currently, a qualified small business may elect to take part of the research credit as a payroll tax credit against its employer FICA tax liability. This business must have gross receipts of less than $5 million and meet other requirements. An eligible business with qualifying research expenses can then opt to apply up to $250,000 of its research credit against its payroll tax liability.

Under the new law, beginning after December 31, 2022, the business can choose to apply another $250,000 in qualifying research expenses (for a total of $500,000) against its payroll tax liability.

Extension of Limitation on Excess Business Losses

In another move to increase future tax revenues, the Act extends the limitation on excess business losses applicable to individuals by two years, delaying the expiration from 2026 to 2028. This provision limits the amount of business losses that individuals can use to offset nonbusiness income to $250,000 ($500,000 on a joint return).

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Since the legislation was recently signed into law, it will be sometime before the appropriate guidance becomes available. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Taxpayers Receive Energy Efficient Tax Incentives from Inflation Reduction Act

Earlier this week, President Biden signed the Inflation Reduction Act (Act) into law. The legislation is designed to help curb the spikes in inflation that have been threatening since the end of the pandemic. The strategy behind the law is to invest in domestic energy production and reduce carbon emissions by no later than 2030. The law also contains provisions to extend certain aspects of the Affordable Care Act. In addition to these lofty goals, there are several important tax changes and updates that will provide an immediate benefit to families and individuals. Specifically, there were several tax incentives and rebate programs included in the Act designed to benefit those making energy-efficient changes. To help clients, prospects, and others Selden Fox has provided a summary of the key details below.

Purchase of New Electric Vehicles

The act extended and broadened the tax credit for the purchase of new energy-efficient vehicles such as hybrids, electric plug-ins, and more. The federal tax incentive is worth up to $7,500 and is available through 2032, and it removes previously existing caps on the number of eligible vehicles per manufacturer. However, only new electric cars less than $55,000 ($80,000 for trucks and SUVs) are eligible and new income limitations will limit the credits to individuals with income above $150,000 ($300,000 for MFJ). Additionally, certain components, like the battery, must be domestically sourced under strict new eligibility requirements.

Purchase of Used Electric Vehicles

There is an available credit for the purchase of used electric vehicles. Eligible buyers can receive a credit of $4,000 or 30% of the sales price, whichever is less. For this credit, the vehicle cost may not exceed $25,000, the model must be at least two years old, it must be the first sale of the car after passage of the Act, the credit can only be claimed once every three years, and income limits similar to new vehicle credits apply.

Extension of the Energy Efficient Home Improvement Credit

An incentive extended and enhanced by the Act is the credit available for the installation energy efficient home improvements. Eligible property can include doors, windows, heat pumps, water heaters and boilers. The 30% credit, which formally had a lifetime maximum of $500 now has an annual limit of $1200. It is worth noting the credit can now be claimed on battery systems which store excess renewable energy, a new benefit that was not part of the prior regulations.

High-Efficiency Appliance Rebates

While not a tax incentive program, it does provide a financial benefit to qualifying families that purchase energy-efficient appliances. Designed to benefit low to middle-income families, eligible taxpayers must have an income 150% less than the median income where they reside. Rebate maximums include $840 for a stove, range, oven, or dryer; $1,750 for a heat pump water heater; and $8,000 for a heat pump for space heating or cooling. There are also rebates available for non-appliance upgrades such as insulation, wiring, and ventilation systems. The total rebate amount a single family can receive could reach up to $14,000.

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The Inflation Reduction Act has opened the door to incentive programs designed to benefit Chicago individuals and families. Since the legislation was recently signed into law, it will be sometime before the appropriate guidance becomes available. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Evaluate Business Performance with Profitability Ratios

Many Chicago businesses faced significant disruption when the COVID pandemic made its way to the shores of the Windy City. Not only did government orders create a challenge, but so did the concern about virus transmission. The whole experience not only impacted shopping and purchasing behavior, but has also had a lasting impact on the global supply chain. As a result, manufacturers could not properly forecast the resurgent demand for raw materials, supplies, and other inputs, post pandemic. The result has been a sharp increase in the cost of essential items. As Illinois businesses get back to normal, there are new challenges on the road to profitability.

While issues vary by industry, it is certain that companies should regularly evaluate performance to identify strengths, weaknesses, and where improvements can be made. One important method for making such an evaluation is with financial statement ratios. These ratios can quickly provide insight on how a business is performing. There are several types of ratios, but the ones most often used are profitability ratios. To help clients, prospects, and others, Selden Fox has provided a brief overview of profitability ratios and a few of the more commonly used ratios.

What are Profitability Ratios?

Profitability ratios are financial statement ratios used to understand the ability of a company to generate income over a set period relative to revenue, operating costs, and balance sheet assets. These ratios provide the best insight when compared to either prior periods, or other companies within the same industry.

Common Profitability Ratios

Gross Profit Margin

This ratio evaluates gross profit against sales revenue. To calculate gross profit margin, subtract total revenues from the cost of goods sold and then divide it by total revenues. The result reflects how much revenue a business has generated as compared to costs incurred. A higher margin indicates more production efficiency whereas a lower margin reflects lower production efficiency. There are many variables which impact margin such an increased cost, adverse purchasing policies, or low selling prices. To increase margin, management may consider increasing prices, elevating the sales volume, or seeking ways to reduce overall costs.

Operating Profit Margin

This ratio evaluates earnings as a percentage of sales before interest expenses and income tax are deducted. To calculate operating profit margin, divide operating profit by total revenues. The result identifies how well a business is managing its operating expenses. The operating margin is commonly used to evaluate management effectiveness since productive policies can help to manage, or reduce, overall operating costs.

Net Profit Margin

Also known as the bottom line, the net profit margin ratio provides insight into overall profitability once all expenses have been deducted. To calculate net profit margin, divide net profit by total revenues. This is a popular measure of profitability because it takes all expenses into account. However, this means one-time issues that may cause fluctuations in expenses or gains, are included in the calculation. Unfortunately, this can make it more difficult to accurately compare against prior periods or with competitors.

Return on Assets

This ratio measures the ability of an enterprise to generate profit by using available assets. To calculate return on assets, divide net profit by average total assets. A high number generally means a business is very efficient in using assets to generate profit, while a lower number indicates the converse.

Ratios are used to compare performance with competitors and industry averages, attract investors, and help identify areas in a business that may need work or attention.  They can also be used to identify positive and negative trends that may help management make operational decisions.

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There are many types of financial statement ratios of which profitability ratios are one. Other ratios evaluate different aspects of performance including liquidity, leverage, and efficiency. These ratios are invaluable tools for Chicago businesses looking to evaluate performance on an on-going basis. If you have questions about the information outlined above or need assistance with an accounting or tax issue, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Document Retention Best Practices for Individuals

Is it time to clean out those file cabinets? Or maybe see what can be deleted from your electronic/ digital files? Individual taxpayers often ask what specific tax and financial documents they need to retain and for how long. This is a commonly asked question because people tend to either save every document for a long period of time or they throw away documents as soon as their return has been filed. These extremes often leave some wondering what the best approach is to saving paper or electronic/digital documents. There are some general best practices taxpayers can follow to ensure their documents are being saved for the appropriate period of time. To help clients, prospects and others, here are some record retention guidelines organized around number of years to retain the documents.

Document Retention Best Practices

  • Three Year Retentions – In general, documents related to your tax returns should be kept for three years from the date you filed your return unless you meet the requirements for the IRS to audit your return later, which is discussed below. It is often recommended that documentation relating to investments in limited partnerships and passive activities (as a sale) be retained for a three-year period. In addition, where appropriate those individuals that generate income from tips should retain tip reporting forms and related documentation for three years. Insurance policies once expired would fall in the three-year period as well.
  • Four Year Retention – It is important to retain employment records for a period of at least four years after the date the tax becomes due or is paid, whichever is later. Note this includes documentation on sick pay, vacation pay, and personal time off.
  • Seven Year Retention – Any documentation for accident reports, claims, contracts (seven years from time of expiration), and for settled cases should be retained for seven years. Additionally, bank statements, deposit slips, charitable contribution documentation, and any other bank account information is best saved for this seven-year period. Records related to claims for losses from worthless securities or bad debt deductions should also be kept for seven years.
  • Permanent Retention – There are several items especially those that relate to tax payments and returns that are best retained permanently. This includes cancelled checks for tax payments, property purchases, special contacts, and documentation of investments in limited partnership(s), including Schedule K-1s. Copies of correspondences related to legal matters, deeds, and mortgage title papers are best kept permanently. Tax returns, W-2s, 1099s, worksheets, and other documents relating to the determination of your various federal, state, and local tax liabilities should be kept indefinitely, as well as contracts and leases as well as insurance policies in effect; deeds and mortgages, and estate planning documentation, including inherited and gifted property documentation. 

Statute of Limitations

The statute of limitations as referenced here is the period of time you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. It is important to note that there is no statue to limitations for failure to file a tax return. For this reason, it is important to maintain copies of prior year returns forever. This will provide protection to the taxpayer should the IRS claim that prior year returns were not received. Beyond this, it is also important to save copies of related paperwork for those tax returns.

Generally speaking, the IRS can audit your return for a three-year period after submission. As a result, it is best to retain all related documentation for at least three years on the chance the taxpayer is selected for an IRS audit. However, if you do not report income that totals more than 25% of the total gross income shown on your return, the IRS can initiate an audit for that year’s return for up to six years, so documents related to this situation should be kept for six years. Finally, if the IRS suspects a taxpayer has committed fraud, they can initiate an audit at any time.

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There may be specific rules and guidelines governing when an individual taxpayer should discard tax, financial, and other essential banking and payment documents depending on their individual situation and circumstances. The information provided above should act only as a guide, and we encourage you to retain documents as necessary. If you have questions about document retention or want to discuss tax planning, we are happy to help. For additional information please call us at 630.954.1400 or click here to contact us.

Long-Term Projects Not Getting Done?

Chicago organizations and companies strive to have the necessary leadership and staff in place to accomplish the regular and routine daily, weekly, and monthly activities needed to run the business. With the ongoing labor shortage and race for talent, even necessary staffing is difficult to recruit and retain. And it is even more likely that longer term projects—projects meant for the continued evolution or growth of your business—are continuing to get pushed to the bottom of the priority list. To begin to tackle these projects, interim leadership staffing may be a reasonable, economic option to consider.

The benefits of hiring interim leadership staff, whether focused on accounting, operations, human resources, or technology projects, are further valuable given today’s environment. As you consider special projects your team has not found time to start, it is worth considering the benefits of bringing on an interim CFO, COO, or other leadership position to plan, execute, and complete essential projects that are not getting the needed attention.

Benefits of Interim Staffing

The benefits will vary depending on specifically what you have hired an interim leader for, but interim leadership roles can provide overall value to the business in several ways.

  • Short term, predictable investment: Interim staffing does not carry the same level of investment as a full-time employee (FTE) in terms of benefit expenses and investment longevity. If planned accordingly, interim staffing can provide a definitive expense amount for a specific duration of time—a fixed expense that is often easier to manage and budget compared to an FTE.
  • New perspective: An interim CFO, COO, CHRO, or CIO can provide your organization an outside perspective on existing processes and procedures that is often difficult for long-time employees and leaders of an organization to see on their own. This can prove valuable when an organization falls into the rut of doing things because “this is how we have always done it”, as well as when embarking on a project that seeks to step back and look at the big picture.
  • Need for a change agent: When change is needed, regardless of the reason, hiring an interim position is often a good approach. Along with the new perspective, a new face and personality, is often in a better position to lead the execution of significant change. This allows the full-time leaders to be in a position of being impacted by change—not appearing as the change agents—just as much as everyone else.
  • Flexibility: Interim staffing can provide what you need when you need it, and when you don’t need services, you don’t need to make the investment or commit your full-time resources. Depending on the responsibilities and the projects you need completed, an interim position can come and go as needed.

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Interim leadership roles may be a good option to consider depending on what needs to be accomplished for your business. At Selden Fox we have professionals who can serve as an interim CFO, as well as an interim COO, or in several other senior leadership roles. If you are considering interim leadership staffing or have questions about the information outlined above, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us.

Amended Safeguards Rule Intensifies Data Security Measures for Auto Dealers

Automotive dealerships have been complying with the Gramm-Leach-Bliley Act’s (GLBA) Safeguards Rule for more than 20 years to ensure customer data security. In October 2021, the Federal Trade Commission (FTC) amended the 2003 Safeguards Rule requiring additional controls for existing security compliance processes to better combat increased data breaches and online security risks. The revised rule took effect on January 10, 2022, although certain requirements, such as the appointment of a qualified individual and written risk assessments, are set to go into effect on December 9, 2022.

The relatively complex requirements may carry a lofty burden, with the National Automobile Dealers Association (NADA) estimating upward of $200,000 in additional costs each year. Because of the significant time and financial investment necessary to comply with the enhanced rule, it’s recommended all affected auto dealerships begin preparing and implementing the changes as soon as possible.

Basic Overview of Updated FTC Safeguards Rule

The Safeguards Rule was introduced as part of the original 2003 GLBA to help strengthen the security of customer information and financial data, especially for those receiving loans and financing assistance.  

The new FTC Safeguards Rule calls on non-banking financial institutions to develop and implement a more robust security system to maintain customer data. Since most auto dealerships offer financing as part of their sales agreements, they automatically fall into the “non-banking financial institution” category and are subject to the FTC’s increased security measures.

In light of several high-profile data breaches, the FTC’s final amendments include a number of intensified obligations surrounding security, including new and expanded procedural, technical, and personnel requirements. The updated rule requires all financial institutions to comply regardless of size, systems, or scope of data they collect.

The following amendments specifically impact auto dealerships:

  1. Extra criteria surrounding risk assessment, system access controls, authentication, and encryption on top of existing requirements for developing and implementing a written information security program.
  2. The appointment of a “qualified individual” to oversee the effectiveness of the information security program, including employee training and service providers. This individual should also be responsible for providing periodic reports to boards of directors and governing bodies.
  3. Ensure all affiliates, service providers, and vendors comply with safety measures and effectively protect customer information. This includes all third parties that might access the customer’s personal information during the loan or financing process, including customer resource management (CRM) tools, marketing agencies, and data management platforms.

Small dealerships collecting information from less than 5,000 consumers may be exempt from the requirement of a written risk assessment, incident response plan, and annual reporting to the board of directors.

While the above represents a basic overview of the increased security measures, auto dealers should consult their financial advisors and legal counsel regarding specific questions and ensure proper compliance with the updated rules.