Resolve to Reduce Taxes in 2006

By Jan Zobel, EA

While everyone is looking for a way to save taxes, often the solution is as easy as keeping better records. Here are some suggestions that may result in some real tax savings (or at least less of a hassle in the event of an audit):

Keep a record of every single deposit made to all bank accounts.

Record all money coming in, whether taxable or not. At minimum, note in your check register the source of each deposit. Gifts and loans are not taxable but careful records should be kept if you receive either of them.

Use one of your credit cards just for business expenses. The card does not need to be in the business' name. While personal credit card interest is not deductible, business credit card interest is 100% deductible.

Deposit all money from the business into your business account. From there, money can be transferred to your personal account. Try to write only business checks out of your business account and personal checks from your personal account.

Keep the original charge card receipts from any business expenses you charge. The monthly statement gives no information about what was purchased.

You don't need to keep the receipt for an expense that costs less than $75 but you do need to record all information about the expense: how much it was, to whom payment was made, what type of expense it was, the date paid, and so on.

Your appointment book or calendar is an important part of your tax materials and should be kept with them from year to year. Notations can provide back up information about business mileage, pay telephone expense, business trips, etc.

For tax purposes, the date you charge something is the date it's considered paid. If you charge something before December 31, you can deduct it on this year's tax return even though you won't be paying the credit card bill until next year.

Remember the adage, "Garbage in, garbage out." If you don't understand the information you're entering into your computer program, the financial records that come out may or may not be accurate.

If your business has an inventory, keep track of those items that are removed for personal use as they cannot be deducted as a business expense.

On December 31 write down your car's odometer reading. If you do this every year, you'll know how many miles you drove during the year. You still need records showing how many of those miles were driven for business.

© 2005 Jan Zobel, EA.