The last thing most people think about when starting a business is doing taxes. But proper planning and record keeping will make doing your taxes much easier - and keep the IRS happy!
1. Whenever you buy anything for your business, keep the receipt!
Not only will this make record keeping a lot simpler, but if you are ever audited (having your tax return reviewed in detail by the IRS), you can prove your expenses, and save yourself money.
2. Write down all your expenses and income as they happen.
As your business grows, you'll have more and more activities to keep you busy. The last thing you'll want to do each April 15 is to organize your records for the year. So, it's a good idea to write down all your financial activities as they happen. Keep an expense and a mileage log. Better yet, you can use the mobile app such as Quickbook Business Online app to keep track of all your business expenses. You'll find preparing your taxes will take much less time if you are organized.
3. Learn how to save money on your taxes.
As you learn about taxes, you'll find that there are many deductions (expenses that reduce your income, and therefore your taxes) you can take that are not obvious. When using your home office, you may be able to deduct (at least partially) repairs you make around the house, utilities, depreciation and more.
The more you know about taxes, and the more organized you are in keeping records, the more time and money you will save at the end of every year!
Individuals with small businesses are the most likely to have their tax returns audited by the IRS. If you don't have a receipt, you will likely lose the deduction and owe the IRS money.
And while an audit does not have to be feared, you should be prepared - the more organized your records, the easier it will be to prove your case.
If you don't have one, get a file box and some folders at your local office supply store (these supplies are deductible, so keep your receipts!) and create a filing system for your business. Put all your receipts in the proper folders, and put them in a safe place.
Another way to save yourself time is to record all of your business transactions - expenses and income - on a spreadsheet on your computer. Keep a column for income, advertising, supplies, etc. You don't need to be a computer expert. But keeping accurate, organized records will help you save time when you fill out your taxes at the end of the year.
And it can help you plan, by giving you a snapshot or your financial progress whenever you need it.
April 15 has come and gone and you survived through another tax year. But what should be done with the tax forms and shoeboxes of receipts after you paid the IRS or received your big fat refund check in the mail?
Federal law requires you to maintain copies of your tax returns and supporting documents for at least three years. This is called the "three-year law" and leads many people to believe they are safe provided that they retain their documents for this period of time.
However, if the IRS believes you have significantly underreported your income by 25 percent or more, it may go back six years in an audit. Moreover, if there is any indication of fraudulent activities or if you do not file a return, then no period of statutes of limitation exists. For more information about record keeping, please refer to the IRS publication 463.