Keeping
Up
Check 21
The “Check Clearing for the 21st Century Act,” referred to as “Check 21,” is a federal law which became effective on October 28, 2004, designed to increase the speed and efficiency of check processing. Instead of physically moving paper checks from one bank to another, banks can now create an electronic negotiable instrument referred to as a substitute check, and destroy your original check.
How does this impact you from a tax standpoint? For those who have traditionally saved cancelled checks as documentation for deductions claimed on your tax return, you may want to consider the following suggestions for 2005:
- As you write checks, mark those items in your check register that represent tax deductible items.
- When your bank statement arrives, identify the check images or transaction information that match up to these items. Be sure to accumulate all of your monthly statements in one place, so that you can easily access the documentation you need to provide to your tax preparer at year end.
- If you use Quicken or a similar software product to track financial information, be sure to record deductible items accordingly, so that you can print off a quick summary at tax time.
- If you use online banking and bill paying, the same guidelines apply. Either print and maintain a hard copy of your monthly statements, or download the statements to a disk and file it with your tax information.
The information required by the IRS to prove a tax deduction includes the check or transaction number, dollar amount, payee’s name, and date. If this information is provided on the bank statement itself, no check or check image is required; the statement will suffice. If your return is audited and more proof is necessary, you can request the actual substitute check from your bank.
Changing technology continually redefines the way we handle our financial affairs. Forming new habits can be difficult, but what better time to start than a new year?
For more information about Check 21, contact us or visit www.federalreserve.gov.
Did you know…?
Cash donations made prior to January 31 specifically for tsunami disaster relief can qualify as a 2004 tax deduction!2005 Standard Mileage Rates:
• 40.5 cents a mile for all business miles driven, up from 37.5 cents a mile in 2004;
• 15 cents a mile when computing deductible medical or moving expenses, up from 14 cents in 2004; and
• 14 cents a mile when giving services to a charitable organization.
