It happens every year. A client wanders in with a shoe box and a prayer and wants me to put a miracle out of my hat. Then they get depressed or angry or both because they have to pay tax, sometimes a lot of tax.
So you want to know the secret to getting every stinking tax deduction you are entitled to? Rule No. 1. Keep good records. It is as simple as that.
Rule No. 2. Keep things separated. If you have a business, its records need to be separate from your personal stuff. If you have multiple businesses, you must keep their records separate from each other as well. Mingling your business and personal finances is bad. Separate business and personal bank accounts are good. Only pay business expenses using business accounts, and personal expenses using personal accounts. You may need to write yourself a check from your business (draw) to deposit in your personal account to pay for personal expenses; you may need to write a formal loan document to your business to cover business expenses. Even though this seems like extra paperwork, it is essential to good record keeping clarity.
Rule No. 3. Keep every stinking receipt, no exceptions. If you don't want to store paper, there are scanning products that may allow you to create a digital version of these records and even file them and organize them for you. However you must be able to print out a legible copy from that digital file AND you must keep back-ups (notice the plural?) AND those back ups should not reside in the same place as the original electronic file. Lose the electronic file without a back up and it is the same as NOT having a receipt. Oh, give your digital files meaningful names... office-supplies-4-12-12 is much more useful than PO9567.
Rule No. 4. Invest in some way to keep everything separate -files, envelopes, piles on your desk, bank accounts, credit cards, ledgers, etc., set up a system AND use it.
Rule No. 5. Invest in a pen & a stapler. Use the pen to make notes on your receipts so you can write down What it was for on the receipt. You must write down Where & What for, on that business trip receipt. You must write down Who was there, What business was discussed on that business luncheon receipt. Staple credit card payments to the bill they go with. When you pay a bill, write down How you paid, the amount & when.
Rule No. 6. Get a mileage log and use it religiously. Have one for every vehicle. Lots of mileage is deductible, but only If you write down the mileage in a log created at or near the time the mileage is incurred. Office supply stores carry them and they are very inexpensive.
Rule No. 7. Learn the rules. No one is responsible for your stuff but you. If there are any special deductions: Home office, gambling, real-estate professional, etc. that you've heard of and want to use, learn the rules (www.irs.gov has a wonderful search feature) and follow them. Alternatively, discuss it with your tax professional-nobody knows your business better than you, so if you have a question you must ask it.
Rule No. 8. Keep a schedule. Once a week, twice a month you must sit down and organize everything. Handle each piece of paper once, make a digital copy, log it into your ledger, spreadsheet, Quicken, Quickbooks, Peachtree, or what-ever, staple things together, shred stuff if it needs to be shredded, and file the digital, or paper copy in such a manner that you know you can find it later. If you don't want to do it hire competent help, but realize you are ultimately responsible.
Rule No. 9. Hire competent professionals if you need them. If your finances are complex, maybe you need to investigate the use of entities such as corporations, LLCs and trust, and hire professionals such as lawyers, CPAs, financial planners and bookkeepers. Use them in a timely fashion. If you see your book-keeper once a year, your results are not going to be that good, things get lost, memories fade and questions do not get answered. If you get a CPA or an attorney after a problem has happened your results are not going to be that good either.
Rule No. 10. Take personal responsibility for your finances - that is how the adults do it. Don't blame the bookkeeper for poor financial records if you only show up once a year with incomplete records. Don't blame the CPA if you did not pay your estimated taxes. Don't blame the attorney if you did not give them enough information to adequately advise you. Garbage in, garbage out applies.
Your records are only going to be as good as what you put incomplete records delivered & entered in a timely fashion yield the best results. Most banks only give you 60 days to challenge a charge; and many banks only keep 6 months worth of statements online. You run across a problem 10 months out, often there is no way to get at the record you need or fix a problem, you may not remember critical details, and you may not be able to adequately answer all questions.
As always, small business services and taxation are our business. If you need help with taxes, or other services, Please give us a call. We would love to engage you as a client.
The usual disclaimers: Although the author has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, dis-information, changes, mistakes, typos and hackers happen, therefore GetMeOutOfThisShoebox.com, Art & Business Consulting LLC, its employees, members and other associates, take no responsibility for any action taken or results based on the information supplied here in. The content of this article generally applies to business and individual taxation in the United States of America. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein. The author currently does not have a certified public accountant, human resource specialist, certified financial planner or an attorney on staff; this information is purely for educational pur-poses and not to be construed as legal or financial advice. The author, and its employees, members and other associates are not engaged to practice law; you always should discuss legal matters with your attorney before talking to anyone.
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