Tip 9 - Tax Tip
We strongly urge you to write down
every expenditure, income, and mileage; keep receipts in a filing
system that makes sense; and use of a tax preparer knowledgeable
in small business taxes. This way you can take advantage of the
unique deductions allowed small businesses.
Whether you’re a sole proprietor,
limited partnership, or incorporated, it’s imperative that
you don’t mix your normal family tax information with your
business information. If you’ve been using the family checking
account for business, let’s face it—it’s probably
a mess. It’s time to unravel and detail the mess before
dumping it all on your accountant’s lap. It’s also
time to open up a separate business account at your bank so you
don’t make the same mistake when filing next year!
Obviously, we cannot give you expert
tax advice beyond these simple guidelines, but we can pass on
some advice regarding old returns. Some people are unsure about
how long to hold on to old returns and supporting materials in
case of an audit, so here are the rules of the Internal Revenue
Service:
• The I.R.S. has three years from either the due date of
a return or the date the return is actually filed—whichever
is later—to initiate an audit. For instance, if you filed
your 1997 tax return on August 15, 1998 (after filing for the
four month extension) the I.R.S. would have until August 15, 2001
to audit that return. There’s also a six-year statute of
limitations if they feel there has been a substantial understatement
of income. Be sure to check with your state’s tax agency
as well. Statutes of limitations vary by state; some are as long
as four years.
• A safer rule of thumb is
to keep your returns until the first day of the year that is five
years later than the year to which the return applies. For example,
your 1999 return should be kept until January 1, 2004. That means
that as of this January 1, you could throw out your 1995 return.
It’s also very important to keep all the supporting documentation
and information for that specific return until you toss the return;
don’t just keep the return! Yes, it’s a hassle to
keep all those stubs and receipts and scribbled notes, but better
safe than sorry.
• It’s worth the cost
of using a professional tax preparer to get your returns done
right. You’ll have peace of mind because your taxes were
prepared properly—and you got every deduction allowed.
