* Start a folder (paper or electronic on your computer) at the BEGINNING of each year to file your receipts.
* When buying tax deductible items for your farm or business, run a separate order at the checkout for those items only. (Do not mix business and personal items on the same order (receipt)). It is very time consuming to sort through a stack of receipts that contain mixed purchases on the same receipt.
* If you intend to deduct mileage for your business or farm, keep a log of your activity. Note the odometer reading at the start of each year. Keep maintenance records and receipts for gas purchases to help substantiate your deduction.
* If you travel out of town and intend to deduct your travel expenses, keep a detailed log of your travels including the dates, purpose, and destination for each trip.
* For items over $500 used in your farm or business, bring a receipt in with your tax information so the information can be accurately added to your depreciation schedule.
* If you wish to take the deduction for charitable contributions, DO NOT GIVE CASH. Use check or money order and get a receipt.
* If you wish to receive the Minnesota education credit for educational expenses for your children (K-12), run a separate order at the store for the deductible items and keep the receipt. Bring it with you at tax time. Do not include non-deductible items in the order. For example, run a separate order for paper, pencils, calculators, and other required school supplies. Keep the groceries, clothing, and toothpaste on a separate order.
* Accumulate receipts for non-deductible items in a separate folder or shoebox. Receipts for personal expenses like groceries, dining out, and toiletries aren't deductible but help substantiate the fact that you pay for personal expenses and do not deduct them. Don't give these to your tax preparer- just keep them for 3 years just in case of an audit (or some other reason you need to dig through and find an old receipt like to prove that you were at Taco Bell at 7:34 PM on the night your local bank was robbed and someone thought they saw you breaking into the vault).
* Keep medical bills in a separate file and note the date and amount paid BY YOU. Keep duplicate billings or statements off to the side to avoid confusion over how much was actually paid BY YOU.
* Keep a log or record of any unusual transactions like large gifts, home repairs, auto repairs, furniture purchases, car, boat or RV purchases etc. Attach copies of the receipts, titles, or other documents to maintain a paper trail.
* Prior to coming in for your tax appointment, download our checklist and use it to compile your information. Make notes and write down your information.
* In an audit situation, your risk and stress level will be greatly reduced if you comply with the above suggestions. Also, your fee from your accountant will be lower since it will take less time to go through an audit when these things are followed. Conversely, taxpayers with poor and inadequate records face the real prospect of IRS adjustments including additional tax, penalty, and interest.
* Good recordkeeping is an insurance policy that can protect you and save you time and money. Small business owners especially need to realize that their tax returns are looked at not just by the IRS. For example, small businesses who need to borrow money must provide tax records to their bankers. Good records will increase the likelihood of loan approval.
Electronic records are acceptable to the IRS and most state tax authorities. Organization and backups are 2 keys to successfully digitizing your records.
Todd's Tax Service LLC
Copyright © Todd's Tax Service LLC. All rights reserved.