Category Archives: Tips

Organizing Your Business Tax Documents

By now, you’ve received (and sent out) various tax documents, statements and even email notices advising where to retrieve your tax documents. So much information . . . how to organize it all? Here are a few tips on how to organize the source documents and tax information you create and receive.

Source Documents – What Are They?

Source documents are critical to supporting business activity as it relates to a tax write-off. We have seen the IRS disallow expenses reported on a tax return that are not supported with a paper receipt. Keep this from happening to you!

Tax write-off source documents must include the following:

  • Description of item purchased
  • Name of the purchaser (your business)
  • Date of purchase
  • Who your business purchased the product or service from

Saving these valuable documents electronically has become more convenient – you can do so on a desktop drive, a server, data drive or in the cloud. All valuable source documents (revenue receipts, expenses, loan documents, accounting data files, etc.) must be retained for 5 – 7 years, per the IRS, for any potential audit purpose as well as company reference.

Getting Started with Electronic Filing Systems

Online access to bank records, credit cards, Amazon, PayPal accounts, etc, brings with it an assumption that these documents will be there forever – or at least the next 5-7 years – if needed. However, this is not the case. For example, many banks will only have an account’s bank statements available to access for 12-24 months. Any statement beyond that period will cost you money to retrieve. Retrieving these documents during an audit adds unneeded stress to an already stressful situation. Handling record retention on a daily or weekly basis in a central location by creating an electronic filing system reduces this stress.

The universal document format for email and online receipts is Adobe Acrobat PDF. CutePDF Writer is a great tool you can install to convert documents to this format. The program acts as a printer – when you “print” your receipt using CutePDF Writer, it saves the page or document as a PDF file. This will allow you to keep your digital receipts accessible over time, even if the software that originally supported the document disappears. Interested in getting started this year? Read How to Organize Your Computer Documents.

You can download a PDF containing all of the information above for future tax seasons!
Download our tax document organization guide here.

Additional Resources

Be sure to check out our resources page for a wealth of financial resources for small businesses. We also have business tax planning guides that will assist with many of the common issues found when doing taxes, and can help you save money on your business’ tax returns!

4 Tips To Help You Save Money on Your State and Federal Tax Returns

Here are some things to consider that may save you some money when filing your state and federal income taxes:

1. Filing Joint or Separate Returns

Typically it works out better financially for couples to file a joint return because the IRS does give joint filers one of the largest standard deductions. However, there are times when it is better to file separately, and here are the top reasons why you may want to:

  • One person has a high amount of losses to claim
  • One person has a large amount of out-of-pocket deductible medical expenses

2. Sales Tax Deduction

You now have the option to take a sales tax deduction instead of deducting state and local income taxes. This is due to the PATH Act or Protecting Americans from Tax Hikes Act. Some states don’t charge income tax, so this deduction would be taken instead. However, there are also other reasons you may want to take this deduction and write off sales tax:

  • Purchased “big-ticket items” such as a car, boat, motorcycle, motor home, travel trailer, etc.
  • Made large home improvement purchases such as windows, roof, etc.

Note that you can write off sales tax based on your actual receipts or use a more convenient state-by-state table. If you opt for the table, you can still add the sales tax paid on certain “big-ticket items,” such as cars and boats.

3. Education

Whether you are a parent of a child in college, or a college student yourself, there are education credits available that you may be able to take advantage of, including:

  • American Opportunity Tax credit
  • Lifetime Learning credit
  • Deduction for tuition and related fees
  • Student loan interest payments

4. Home Office Deductions

Working from home is becoming more popular, so if you work from home, you may qualify for a home office deduction. If you anticipated this and kept detailed records, you may be entitled to both the home office expenses and a portion of the entire home’s expenses which is based on a percentage of business use in the home. However, if you didn’t keep detailed records, you can use a formula equal to $5 per square foot of the home office, up to a maximum of $1,500.

Please contact your tax adviser before using any of the above suggestions. Your tax adviser can help you make the best decision by performing a side-by-side comparison of your options, discuss the pros and cons, and help you make an informed decision. For assistance with your income tax preparation, please contact a qualified accountant at Simply Counted in Holland, MI.