It happens every year. A client wanders in with a shoe box and a prayer and wants me to put a miracle out of my hat. Then they get depressed or angry or both because they have to pay tax, sometimes a lot of tax.
So you wanna know the secret to getting every stinking tax deduction you are entitled to?
Rule No. 1. Keep good records. It is as simple as that.
Rule No. 2. Keep things separated. If you have a business, its records need to be separate from your personal stuff. If you have multiple businesses, their records need to be kept separate from each other as well. Mingling your business and personal finances is bad. Separate business and personal bank accounts are good. Only pay business expenses using business accounts, and personal expenses using personal accounts.
Rule No. 3. Keep every stinking receipt. No exceptions.
Rule No. 4. Invest in some way to keep everything separate and organized–files, envelopes, piles on your desk, bank accounts, credit cards, ledgers, etc. set up a system AND use it.
Rule No. 5. Invest in a pen & a stapler. Use the pen to make notes on your receipts so you can write down what it was for on the receipt. That business trip, Where & What for, needs to be documented on the receipt. That business luncheon, Who was there, What business was discussed, needs to be documented on the receipt. Staple credit card payments to the bill they go with. When you pay a bill, write down How you paid, the amount and when.
Rule No. 6. Get a mileage log and use it religiously. Have one for every vehicle. Lots of mileage is deductible, but only with a log created at or near the time the mileage is incurred.
Rule No. 7. Learn the rules. No one is responsible for your stuff but you. If there are any special deductions: Home office, gambling, real-estate professional, etc. that you’ve heard of and want to use, learn the rules (www.irs.gov has a wonderful search feature) and follow them.
Rule No. 8. Keep a schedule. Once a week or twice a month, to sit down and organize everything, do your bookkeeping and filing.
Rule No. 9. Hire competent professionals if you need them. If your finances are complex, maybe you need hire professionals such as lawyers, CPAs, financial planners and bookkeepers AND use them.
Rule No. 10. Take personal responsibility for your finances — that is how the adults do it. Don’t blame the bookkeeper for poor financial results if you only show up once a year with incomplete records. Don’t blame the CPA if you did not pay your estimated taxes. Don’t blame the attorney if you did not give them enough information to adequately advise you. Garbage in, Garbage out. Your records are only going to be as good as what you put in–complete records that maintained currently yield the best results.
As always, small business services and taxation are our business. If you need help with taxes, or other services, Please give Art & Business Consulting a call. We would love to engage you as a client.
Jake Beckman, EA and Chief Small Business Problem Solver at Art and Business Consulting LLC