Tax Time is Over…Now What?

We’re now a full week into the month of May. The rain has been falling, the sun is shining, and flowers are in bloom. It’s an especially great season since tax time is now just a distant memory, right? WRONG! If you’re like most small business owners, you probably wait until January, February, or maybe even as late as April to start checking your list of items needed for your tax preparer. Does waiting last minute give you anxiety? Does waiting last minute put you into a time crunch and keep you up at night?

Instead of dealing with the stress and time constraints of this situation every year, wouldn’t you rather just keep swimming along after year-end in the same manner as the rest of the months? Today, I’m going to give you some tid-bits of advice on how to accomplish this consistent swimming and avoid the tax-time drowning.

Keep Your Receipts

This is probably one of the biggest organizational problem I’ve encountered in the past, both with clients and employers. Keeping your receipts, ALL of them, is your best line of defense. Keeping them organized, just by month, or type, is even better! As a new business, your bookkeeper or accountant will thank you for having documentation for every purchase or deposit made. Plus, if you are ever audited by the IRS, you already have your backup ready to go. No stressful calls are needed to try and track down a receipt from 10 months ago to show that the large purchase you made at Best Buy was indeed for business purposes.

Retain Copies of Your Statements

Whether you do this digitally or print them out each month, retain copies of your monthly statements. This includes checking, savings, credit cards, and other sources like PayPal. Again, your accountant will thank you later. Plus, creating this routine will likely force you to at least look at the statement and quickly glance over for any issues (What?! I had 3 overdrawn checks this month? I need to see if that’s a bank error or if I have a cash flow problem!)

Start Early

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This is the most straight-forward advice I can give! The earlier you start, the easier the on-going record process is. Think about being offered a whole pecan pie, but you also must eat it in one sitting. Sounds painful, and maybe impossible, right? But what if you were able to eat it just a bite at a time until it was gone? That’s what monthly bookkeeping is all about. Breaking it down into more manageable bites.

You’re also better able to proactively fix errors, follow-up on monies owed to you, and more efficiently track bills coming due when you have a consistent record-keeping process in place. And if you hate the idea of doing this task so regularly, hire someone who enjoys doing it so that you both benefit from the timely work.

If you’d like to start working on your manageable bites together, CONTACT ME to schedule a free consultation.

A Little Fun for Tax Time

With the tax filing deadline just a mere five days away – yes, you get an extra 3 days this year! – I thought I would amuse my readers with some fun and interesting facts about taxes and their history in the U.S. If you still need to file, you better get crackin’, or at least file for an extension.

History of Taxation

Before income taxes, the U.S. initially relied on tariffs. In the event of war, new taxes were imposed but often expired once the war was over. The first income taxes were imposed during the Civil War but did not last since they were not very well supported.

The 16th Amendment granted Congress the power to collect income taxes, which was done in the same manner as today through pay withholdings.  Form 1040, the first income tax form, was released in 1914 by the IRS’s predecessor, the Bureau of Internal Revenue. During this test run year, many people complained about the complexity of the form. (If only they knew how complex it would get!)

The 1913 version Form 1040 was a mere three pages and today it can be up to 174 pages long. The tax code itself is currently over 9,000 sections.

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Strange Taxes

  • Pennsylvania has a tax on coin-operated vacuum machines at gas stations.
  • In California, fresh fruit bought through a vending machine is subject to a 33% tax (Um, shouldn’t we be encouraging people to buy fruit over junk food?).
  • In New Mexico, people over 100 years old are tax-exempt, but only if they are not dependents (I know where I’m moving when I hit triple-digits!).
  • The IRS taxes stolen property. The 1040 instructions say that you should report it as stolen property. However, doing that would be self-incrimination, from which we are protected by the Constitution; therefore, one has the option of reporting it as “other income”.
  • In South Carolina, one can get a $50 deduction if they donate a dead deer to the poor.

Presidential Tax Returns

I think it’s pretty neat that we can see copies of past presidential tax returns. Here are some I personally found interesting.

Not everything about taxes is inherently boring. You can actually learn some interesting things about people by reading their tax returns! If you enjoyed reading any of these facts, check out the full list on Efile.com’s page .

 

 

 

Best Practices: Meals & Entertainment

Many of us meet clients over coffer or lunch or take the team out for celebratory get-togethers. For businesses with M&E expenses (meals & entertainment), there are some best practices to follow to make things easier at tax time.

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According to the IRS website, meals that are only 50% deductible include:

  • Traveling away from home (whether eating alone or with others) on business,
  • Entertaining customers at your place of business, a restaurant, or other location, or
  • Attending a business convention or reception, business meeting, or business luncheon at a club.

The meal must occur in a clear business setting, or if off-site they must meet the associated test. Passing the test means the meeting must be related to a business purpose and must occur directly before, during, or directly after the meeting.

For these reasons, my suggested best practice includes:

  • Keeping receipts for all business-related meals
  • Keeping record (directly on the receipt or with a log) of each receipt’s business purpose and who was in attendance

This proper documentation is important in the case your company is ever audited. This is referred to as recordkeeping by the IRS. Be sure to hold your employees accountable for providing their receipts as well and require reimbursement from them if they cannot do so.

If you’d like an evaluation on your documentation process to make sure you’re in tip-top shape for tax time CONTACT ME today!