Organize Your Way to Tax Savings
January 27, 2010
Organize Your Way to Tax Savings
The holidays have come and gone, and it's time to make up for the excesses of
the season. Most of us are starting the year wanting to lose weight and gain
money. I can't help you with the weight, but I can help you keep more
hard-earned cash in your pocket. How? By getting your tax life organized.
Here is what you can do right now to get prepared for the coming tax year.
Keep Your Records
Every single item you claim on your taxes must be backed up
by documentation. By keeping neat, organized and complete records, you'll be
ready to claim every deduction and credit you've got coming. If you don' t have
the document, you can't claim the expense; and that can cost you a ton of money.
Many people run into trouble because they don't know what to keep or for how
long. For tax purposes you should keep and file the following:
- All self-employment income (1099s, invoices, receipts)
- Employment earnings/W-2s (if you have a wage-earning job)
- Records of interest, dividends and state income tax refunds
- Alimony receipts (if you receive or pay taxable alimony to your ex)
- Capital gains and losses (brokerage confirmation slips, receipts)
- Bank statements (for any account that was open at any time during the year)
- Real estate rental income (lease agreements, closing statements, contracts, canceled checks for repairs/improvements, any depreciation)
- IRA or other retirement distributionsPartnerships, S Corporation, estates and trust income (K-1 forms and investment records)
- Unemployment compensation
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- Social Security benefits
- Miscellaneous income (e.g., jury pay, gambling winnings, prizes, hobby income)
- Retirement plan contributions (statements, copy of the plan)Medical and dental expenses (canceled checks, receipts, insurance policies)
- Tax forms (W-2s, any state tax forms you may have, estimated tax payments)
- Mortgage and investment interest (statements, notes)
- Charitable contributions (receipts, canceled checks)
- Casualty or theft losses (police reports, insurance reports)
- Non-reimbursed business expenses (credit card slips, receipts)
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How long do you need to keep your tax documents? Generally the IRS has three
years from the date of filing to audit any tax return. So at the very least, you
need to keep all tax documents--including your backup documentation--for three
years.
Get Organized
So what do you do with all the items that you need to keep? My secret to
organization: Keep it simple! The simpler the system, the more likely you'll
stick with it. Keep all your tax-related documents in one place, like a file
cabinet at home or at the office.
I recommend organizing your financial
documents based on your tax forms. So for business owners, grab a Schedule C and
a stack of file folders (If you're computer-savvy, create a series of computer
folders. Just be sure you back up your files.). Now label each folder according
to Schedule C.
For example, when you create folders to keep track of your business expenses,
you would want folders for each of the following categories:
- Advertising
- Car and truck expenses
- Commissions and fees
- Contract labor
- Depreciation
- Employee benefits programs
- Insurance (not health insurance)
- InterestLegal and professional services
- Office expenses
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- Pension/profit-sharing plans
- Rent/leaseRepairs and maintenance
- SuppliesTaxes and licenses
- Travel, meals and entertainmentUtilities
- Wages
- Other expenses
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File every single receipt, invoice and canceled check as soon as you receive
it, and you will be armed and ready to take advantage of every taxable deduction
available.
Make a Schedule
Timing is everything when it comes to taxes. So at the beginning of the
year, pull out your calendar and start marking dates. At a minimum, you need to
mark your estimated tax payment due dates (January 15, April 15, June 15 and
September 15) and your filing deadline (March 15 for corporations; April 15 for
most small businesses). If you have employees, you should mark January 31 as the
due date for sending out all W-2s and 1099s, and the dates all payroll taxes are
due (depends on your payroll schedule).
Why is the calendar so important? I can sum that up in one word: penalties.
The IRS charges penalties on any late tax payments--and penalties stink. Late
penalties can add as much as 25 percent to your total tax bill, and that's
nothing to sneeze at. Put reminders on your calendar now and avoid costly
penalties all year long. This isn't just a new year; 2010 marks a new decade!
Let's make a resolution to do things differently. That means you need to keep
your records, get organized and make your calendar your new best friend. And
that way, 2010 can be your best, most financially rewarding tax year yet.
by Roni Deutch
Reprinted from www.womenentrepreneur.com
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