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I got a letter from the Colorado Tax people requesting more information about my 2001 state income tax deduction for my 529 contributions. They want proof that it was actually me who made the deposit, and would like something like a copy of the cancelled checks.

The institution I wrote the checks from did not give me copies of cancelled checks, and after much running around they claim not to be able to find copies from that far back. So all I have is an account statement from the institution showing that checks were cashed, without saying who the money was sent to, and an account statement from the 529 showing deposits of the same amount on similar days. I will send copies of these in, and maybe they will be accepted and maybe not.

Does anyone have any advice on how to proceed? The total amount of taxes at issue is about $200, plus they threaten interest and penalties. Is it worth it to hire an expert? What kind of expert should I hire?
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I got a letter from the Colorado Tax people requesting more information about my 2001 state income tax deduction for my 529 contributions. They want proof that it was actually me who made the deposit, and would like something like a copy of the cancelled checks.

The institution I wrote the checks from did not give me copies of cancelled checks, and after much running around they claim not to be able to find copies from that far back. So all I have is an account statement from the institution showing that checks were cashed, without saying who the money was sent to, and an account statement from the 529 showing deposits of the same amount on similar days. I will send copies of these in, and maybe they will be accepted and maybe not.

Does anyone have any advice on how to proceed? The total amount of taxes at issue is about $200, plus they threaten interest and penalties. Is it worth it to hire an expert? What kind of expert should I hire?


You've got things pretty well at hand. The only thing I would add would be a letter from the institution that was the source of the funds stating that they are unable to retrieve images of the checks in question.

If CO really wants to stick it to you, I doubt there is anything else you or a professional can do to prevent it, short of finding copies of the checks. However, I believe the evidence you have will be sufficient to convince the tax authority that you were the source of the 529 contributions.

Ira
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The total amount of taxes at issue is about $200, plus they threaten interest and penalties. Is it worth it to hire an expert? What kind of expert should I hire?

For starters, someone who charges less than $200 (plus possible interest and penalties).

Lorenzo
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I'm not an expert but I have been in the Colorado 529 for a number a years and IIRC, 2001 is two managers ago. (Nothing like Peter not talking to Paul in the state) What would they be doing if the contributions had been made by EFT - all you would have would be the statements ?

For $200, I'd send them the proof you have and sit tight. TheBadger is a financial guy who might be able to connect you with someone if you really feel you need someone.

rad
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What would they be doing if the contributions had been made by EFT - all you would have would be the statements ?

I pay almost everything through EFT, either initiated by the payee or through online bill pay (Bank of America). Regardless of how the payment was initiated, the statement shows who it went to, and often an indication of what it was paying. I know this is good enough for IRS and would assume it's good enough for states.

When I go through the bank statement I print copies of any checks I might need as proof. It's a nuisance, but there are few, and it will save me trouble if I ever need them.

Phil
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When I go through the bank statement I print copies of any checks I might need as proof. It's a nuisance, but there are few, and it will save me trouble if I ever need them.

I hadn't thought about this - can you give a couple of examples of stuff to keep ?

thanks
rad
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I pay almost everything through EFT, either initiated by the payee or through online bill pay (Bank of America). Regardless of how the payment was initiated, the statement shows who it went to, and often an indication of what it was paying. I know this is good enough for IRS and would assume it's good enough for states.

CO indicated that this would be acceptable for them. Unfortunately, in 2001, I was still writing checks.
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When I go through the bank statement I print copies of any checks I might need as proof. It's a nuisance, but there are few, and it will save me trouble if I ever need them.

I hadn't thought about this - can you give a couple of examples of stuff to keep ?


Anything that might be needed to support a future tax return... such as payments to doctors, pharmacies, etc.; charitable contributions; contributions to IRA accounts; education expenses; investment expenses; tax preparation fees; real estate tax payments (if not paid through escrow); other deductible employee/business expenses; estimated tax payments; etc.

Don't forget to make copies of any checks that pay for capital improvements to your house. These will add to your cost basis. Even though there is currently a tax exemption on the first $250K/$500K of gain when you sell your primary residence (subject to certain qualifications), there is no guarantee that the rules won't change, or that your eventual gain won't exceed the exclusion limits. When you sell your house years from now, it will be very difficult to go back and find these checks if you don't start a permanent file for them today.

Ira

Ira
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can you give a couple of examples of stuff to keep ?

Checks that you might need to substatiate a deduction, e.g., charitable contributions.

Phil
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Checks that you might need to substatiate a deduction, e.g., charitable contributions.

Why am I thinking that a check isn't good enough - you need a receipt from the charity that meets certain specifications ? A few jobs ago, I dealt with fundraising data and it seems like particularly at the end of the year, there were date concerns - check, postmark, receipt.

rad
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Why am I thinking that a check isn't good enough - you need a receipt from the charity that meets certain specifications ? A few jobs ago, I dealt with fundraising data and it seems like particularly at the end of the year, there were date concerns - check, postmark, receipt.

Contributions in excess of $250 require a receipt from the charity in addition to the check. Having just the receipt from the charity isn't sufficient for the IRS either.

Ira
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Recall CO wanted evidence that I, and not someone else, made the 529 deposits. I just wanted to let you'all know that CO has accepted my documentation which shows checks cashed and 529 deposits on the same days for the same amounts, but with no documentation of who the checks were written to.
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