Tax Season Never Ends: Early Tax Work Pays Off in Time and Money

by Jan Zobel, EA

The following reminders may help to lower your taxes as well as make the
preparation of your next return a less taxing experience:

If you have a separate business account, deposit all money from the
business into that account. Money can then be transferred, as needed,
to your personal account. This helps maintain an accurate record of
business income all in one place.

As much as possible, write only business checks out of your business
account and personal checks from your personal account. This again
concentrates business accounting to one checking account.

Use one of your credit cards just for business expenses. The card does
not need to be in the businessí name. While personal credit card
interest is no longer deductible, business credit card interest is 100%
deductible.

In the event of an audit, you will be asked to provide your canceled
checks as well as your receipts. The check shows that an item was paid
for, while the receipt specifies what was bought. Start a file now to
keep records.

Keep the original charge card receipts from any business expenses you
charge. The monthly statement gives no information about what was
purchased.

While itís true that you donít need to keep receipts if the expense
amount is less than $75 (increased recently from $25), you still need
to record all information about the expense: how much it was, to whom
payment was made, what type of expense it was, the date paid, and so
on. Maybe keeping your receipts will be easier to deal with.

Your appointment book or calendar is an important part of your tax
materials and should be stored with them from year to year. Notations
can provide back up information for items such as business mileage, pay
telephone expenses, and business trips. Keep it up to date.

Itís never better to spend money unnecessary just to save taxes. You
donít save $1 in tax when you spend $1 on a deductible expense.

Keep a record of every single deposit made to all bank accounts. Record
all money coming in, whether taxable or not. At the least, note in your
checkbook the source of each deposit. Gifts and loans are not taxable
but careful records should be kept if you receive either of them. This
prevents the IRS from reclassifying deposits as income.

Remember the adage, “Garbage in, garbage out.” If you donít understand
the information youíre entering into your computer program, the
financial records that come out may or may not be accurate.

Every business that sells goods needs to physically count what is left
in their inventory at least once a year. Inventory removed for personal
use should be noted because it cannot be deducted as a business
expense.

The IRS has no tolerance for incorrectly withheld and remitted payroll
taxes. If you have employees, learn how to correctly withhold and
deposit taxes, hire a payroll service to handle the task, or consider
leasing workers.

Each year by January 31st you need to issue a 1099 Form to anyone to
whom you paid $600 or more during the year for business services or
office rent. Donít wait until then to get that personís address and
social security number, both of which must be included on the 1099
form. To avoid misunderstandings, itís best to get that information
when you hire the person/sign the lease and announce at that time your
intention to issue a 1099 form if required.

Jan Zobel, EA is a San Francisco Bay Area tax professional (enrolled
agent) who specializes in working with self-employed people. These tips
are excerpted from her new book Minding Her Own Business: The
Self-Employed Womanís Guide to Taxes and Recordkeeping (EastHill Press)
which is available at your favorite bookstore or from the publisher at
(800) 490-4TAX.

Originally Published at http://www.homebusinessmag.com/

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