Finance Tax Time

The mail has arrived and oh, no there is a dreaded letter from the IRS. Don’t panic yet, it maybe something as innocuous as information they think you might need, a question of where to apply a payment you made or even a refund check for an overpayment. But should it be more serious, all is not lost.

What to do should you get a notice of a payment due? First and foremost, make sure you really do owe that payment. The Internal Revenue Service is a very large organization and since they have people working for them, sometimes they make mistakes. So read the notice carefully, check your records to ascertain whether or not you have already paid the amount being requested, and whether the check has cleared.

Sometimes they are looking for a return not received. That doesn’t mean you didn’t file the return, it means they have no record of receiving it. Locate your copy (always, always keep a copy of your dated and signed return). Find the post office receipt that proves you sent in your return. You know that green card that the post office returns to you proving that you mailed something to the IRS on a particular date. Of course that “something” might have been an empty envelope not an envelope with your return enclosed. One thing that could point to the return actually being in the envelope is that a check for payment was sent with the return and the check had cleared your bank account.

If you cannot prove a timely filing than your next step is to contact the agent listed on the letter. You may want to do this yourself, however it is probably a better idea to enlist your accountant’s or tax preparer’s help. These people have the experience to handle these situations in the best light and to your best advantage. If, however, you personally meet with the tax agent, please remember to be polite and upfront. And do not be late for your meeting. Provide the records they ask for, and answer the questions they ask truthfully and directly. Remember they are people too, and if treated with respect they will respond in kind.

There are a few things you can do in advance to make sure any future IRS dealings go more smoothly. Of course the first is to make sure you follow the rules. And one of those rules is to keep clear, complete, and accurate records. Remember the article about “shoebox clients”. It is the business people that don’t take the necessary steps to keep a good set of books that get in the most trouble. If you think hiring a bookkeeper or bookkeeping service is expensive, wait until you try to go through an audit with unorganized financial records.

Copyright 2006 Bookkeeping R Us All Rights Reserved

Bookkeeping R Us

Share This

Filed under: Tax Infomation by admin
No Comments »

Any small business owner knows that they may live or die by the financial decisions that they make. While many cut corners by making prudent purchase decisions, few realize the opportunities that are available to them when it comes to working out the taxes for their business. In this article, we’ll give you some tips to help you realize the best ways to optimize your taxes.

- One interesting write-off that many small business owners fail to realize is their health insurance. The taxing laws dictate that self employed people may write off a full sixty percent of their health insurance costs, saving them potentially thousands of dollars. In addition, medical savings accounts can be set up and the contributions made up until April 17th are considered by the IRS.

- When considering employees for your business, think family first. If there are people in your family that can help you to operate the business, you can allow them to take on some of the income of the business, allowing you to put your earnings into lower tax brackets, assuming the relative performs some type of service to the business.

- Another aspect often neglected by uninformed small business owners is the prospect of a retirement fund. You can contribute to a qualified self retirement fund which is completely tax deductible in your returns.

- The first year expense limitation for any small business is now $19,000. Don’t forget to write off any business-related practices, including taking potential clients to lunch, or golfing, or whatever situation may merit as an expense. One technique often employed when it comes to lessening the taxes that you face is to buy supplies that you know that the office will need in the coming year early so that you can write them off. While it’s not a permanent solution, it can defer the damage your taxes do to you.

Keeping track of your financial records and keeping a clear separation between expenses made for yourself and those made for your business can really ease your struggle come tax time. Being organized and having a plan can save you both time and all-important money.

Share This

Filed under: Finance-Tax Info by admin
No Comments »

QUESTION:

How long should I keep my tax returns?

ANSWER:

One of the questions I am asked most often, both as an accountant and as a tax preparer, is how long should you hold on to records and files, receipts and bills, and the like.

First of all, it is my belief that you should keep the paper copy of your tax returns (Form 1040 or 1040A plus all supporting Schedules and Forms) forever! This provides a permanent record of your financial history. You never know when the information on a prior year’s tax return will come in handy for a variety of tax or financial related reasons, or just to satisfy personal curiosity.

The time period for keeping all other records ties in to the fact that the IRS, and the appropriate state tax authorities, has three (3) years from the due date (or filing date if you had any extensions) of a tax return to audit that return (except in the case of tax fraud - then the IRS can go back forever). If you filed your 2002 Form 1040 by the initial April 15, 2003 due date, “Uncle Sam” has until April 17, 2006 to audit it and ask for additional taxes.

I recommend keeping all back-up documentation that supports an item reported or deducted on your tax return for four (4) full years. This includes all applicable bank statements and cancelled checks as well as W-2s, 1099s, 1098s, and appropriate receipts and bills. You can toss all such information for your 2002 tax return in December of 2006.

Hold on to your individual pay stubs for the year until you have received the Form W-2 for that year. Reconcile the year-to-date cumulative totals on the last pay stub for the year to the amounts reported on the W-2. If they match you can throw out all but the last pay stub. Keep the final pay stub for the year, with year-end cumulative numbers, with your tax return documentation for that year.

Certain documentation requires longer holding periods. For investments in stock, bonds and mutual funds you should keep all confirms and other appropriate back-up, such as notices of splits and records of any dividend reinvestments, for as long as you hold the investment plus four (4) additional years. You should keep the confirmation slip or other documentation for the sale or disposition of the investment for four (4) years after the sale or disposition.

Similarly, if you own real estate you should keep all Closing or Settlement Statements for the purchase and refinancing of the property, and documentation of any capital improvements, for as long as you own the property plus four (4) additional years. You should keep the Closing or Settlement Statement or other documentation for the sale or disposition of the property for four (4) years after the sale or disposition.

If you have invested in a limited partnership or “sub-chapter S” corporation, or are a partner in a business organized as a partnership, a “sub-chapter S” corporation or an LLC or LLP, you should keep the annual Form K-1 you receive from the investment or business for as long as you own an interest in the entity plus four (4) additional years, and keep any paperwork related to the sale or disposition of your interest for four (4) years after the sale or disposition.

Receipts and bills for personal expenses that are not related to any items reported or deducted on your tax return can generally be tossed after one year. Throw out all such bills for calendar year 2004 in January of 2006. You may want to keep bills, receipts and cancelled checks for equipment, applicance and the like for at least as long as these items are covered under warranty.

Do you have a question you would like to Ask The Tax Pro? Go to http://rdftaxpro.tripod.com/taxhelp.

Robert D Flach is a tax professional with 34 tax seasons of experience preparing 1040s for individuals in all walks of life. He writes and publishes the free monthly online newsletter STUFF AND SUCH (http://rdftaxpro.tripod.com/stuffandsuch) and several other websites, as well as several print newsletters and reports on tax planning and preparation. For more information on his websites go to http://rdftaxpro.tripod.com/websites.

Share This

Filed under: Finance-Tax Info by admin
No Comments »