Take the Pressure Off! Best Methods to Keep Track of Deductions
Take the Pressure Off! Best Methods to Keep Track of Deductions
Tax season can sometimes cause business owners to feel stressed out and anxious, but the best way to combat this is by preparing your tax records ahead of time. Many are worried that they’ll lose important paperwork or not have it when needed. They worry that the appropriate documents don’t exist or that they don’t properly understand what constitutes a deductible expense.
What Things Can I Deduct?
The government has set forth certain restrictions on what can and can’t be deducted when filing your taxes. If you incur costs as a result of your business, you’ll need to consider what purpose your item is serving and plan accordingly.
“It is extremely important to keep your important papers straight for tax purposes, as tax planning statistics show that the lack of organized filing leads to a 20% greater chance of being audited.”
You may not be able to deduct the entire entertainment outing you take your partners or clients to, but you may be able to deduct part of your expenses. You can talk to your bookkeeper about the exact rules regarding the deduction of home office space. The rule, generally speaking, is that that space must exist exclusively for business purposes and that you must also measure the exact square footage of that location.
For those with businesses, you can log your:
- Travel receipts
- Miles driven
- Meals
- Tickets to trade conferences
Entrepreneurs also need to keep track of things like the hours their employees work and the general duties that they perform.
It is best to bring along all documentation and to allow your CPA to make the final determination. For people who do not own businesses, they can expect to bring tax statements from their mortgage company showing how much interest they paid on their house and car that year.
Medical expenses can be claimed if they are over a certain percentage of your income, and you can claim donations made to churches and charitable organizations.
Methods of Keeping Your Records in Order
Even if you have had trouble organizing in the past, there is no time like the present to develop a new system for tracking your receipts.
Paper Filing: You can use a file cabinet or a filer that sits on your desk. Additionally, you can even use a box or a small plastic bin. Whatever you use to house the documentation will need a method of labeling items further. You can even use envelopes or file folders to track specific categories.
It will be immensely helpful to then make sure that your information is stored in order of the date in which the action occurred. You may also want to make copies of your receipts and file the originals for safekeeping in a different location.
Your CPA will likely only need your facsimiles at tax time.
Digital Storage: Scan receipts online, and store bank and other important statements as PDFs. You can then keep them in folders on your computer. You can also use programs like Dropbox.
Smartphone Apps: Apps like Expensify let you merge information directly from your bank account onto their database. From there you can file your transactions into different categories.
It is extremely important to keep your important papers straight for tax purposes as tax planning statistics show that the lack of organized filing leads to a 20% greater chance of being audited. Avoid audits, keep your information straight, and reduce your stress this tax season!
Larry L. Bertsch, CPA & Associates, a top CPA and small business accounting firm, has been offering quality accounting and tax preparation services to entire Las Vegas market since 2003.
