Tax Season Never Ends:

                      Early Tax Work Pays Off in Time and Money

 

              by Jan Zobel, EA

 

 

               April 15th has come and gone. With a sigh of relief you’ve put away all

               the papers and records related to your 1996 tax return. Don’t start

               celebrating yet, you need to recognize that taxes is a year-round

               concern. While it’s true that your 1997 1040 form won’t be due until

               next April 15th, your 1997 tax liability will be determined by how well

               you handle recordkeeping throughout this year. The following reminders

               may help to lower your taxes as well as make the preparation of your

               1997 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 business’ 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 it’s true that you don’t 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.

 

               It’s never better to spend money unnecessary just to save taxes. You don’t 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 don’t understand the information

              you’re 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. Don’t wait until then to get

              that person’s address and social security number, both of which must be included on the

              1099 form. To avoid misunderstandings, it’s 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 Woman’s Guide to Taxes and

              Recordkeeping (EastHill Press) which is available at your favorite bookstore or from the

              publisher at (800) 490-4TAX.