End of Year Tax Preparation

True it is only September, but the new year is right around the corner, and now is the time to make sure you are ready to file your taxes. Isn’t that so exciting? The more organized and complete you are with your bookkeeping throughout the year, the easier this will be. But you can still take time over the next 3 months, making January-April much easier for you in 2014. Here’s a list of tasks to make sure you’re organized and are not missing anything.

1. Reconcile all bank statements. This process helps to ensure that you have properly recorded your payments and expenses. It also helps you catch any possible bank errors or extra fees that you should not have had to pay.
2. Make sure you have invoiced your customers, which keeps your invoicing system organized. Also review any unpaid balances and make sure that your outstanding balances match your records.
3. Record all transactions that are not paid for with your business account. Sometimes we make charges or pay for things in cash without recording them. By reconciling credit card statements, it is easier to keep track of business expenses versus personal expenses. If you don’t record all of your expenses, your reports will show a higher profit and you will pay more in taxes.
4. Track your mileage, record trips, and keep gas receipts if possible. Your commute to and from your place of work is not allowed to be used as an expense, but any trip taken for business can add up over the year.
5. Review your categorized expenses. Office supplies and entertainment costs should be in the correct category so that you can compare costs from last month and last year. This also ensures that only deductible expenses are recorded, eliminating possibilities for record errors.
6. Make sure contact information is accurate for employees and contractors so that W2’s are properly prepared. Collect your contractors’ W9 forms because in January, you may be required to file a 1099 form for them, and you will need accurate taxpayer information.
7. Prepare a budget for next year. Take your Profit and Loss statement for this year and enter this information into next year’s budget. Then take a look at the sales and expenses for each month and make any changes if needed. Continue to review your income and expenses throughout the year.

What are you doing to make tax season a little easier for your business? If you need help organizing your records or handling your bookkeeping, that is what we do best! 

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5 Ways to Avoid a Tax Audit

I can’t speak for everyone, but I know one of my biggest fears when filing my taxes is that the IRS will target me for an audit. I have found a few tips that can prepare you for an audit- or just help you avoid it in the first place. The total number of audits conducted increased by 13% in 2012 from the year before. Some taxpayers can get flagged for an audit if they make mistakes that raise questions as to whether or not they’re reporting all of their income, from forgetting to report even small amounts to paying taxes for your babysitter! Overall, the probability of being audited is still low (the IRS audited less than 1% of taxpayers last year), but just in case, here are some things to keep in mind.

1. Check your math.
The IRS caught more than 6 million math errors on tax returns in 2010, including over-estimating deductions, under-estimating what was owed, and calculating incorrectly. Filing electronically may help people catch some of these errors, but experts say taxpayers should be very careful to claim deductions appropriately. It also helps to use exact numbers instead of rounding; if something seems out of line, consider a red flag being thrown up!

2. Report losses accurately.
If you’re reporting losses on your tax return from business, partnership, or rental property, be aware that showing losses for several years in a row will flag your tax return. Eventually the IRS will want to see profits, or they might just deny your losses. Also, writing off losses as a hobby is a big “no no”. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. You cannot mix income and deductions between businesses and hobbies.

3. Be consistent.
The IRS looks for consistency. If you report expenses that seem significantly higher this year than last without increased income, they could flag you. Also, if you are in the same business, but claim deductions that you have not claimed in the past, they have a reason to take note. The key here is to make sure that increased expenses are matched with increased income. Keeping accurate records of when and why extra costs are incurred will help in case of an audit.

4. List all of your income.
Not reporting all the income listed on 1099 forms invites an audit from the IRS, including investment income, payments for freelance jobs, and interest earned from a bank account. Once concern is raised in one area, the IRS will most likely scrutinize other areas of your tax return as well, including deductions and credits. If they start checking into past years, you could be charged late payments and penalties.

5. Document deductions if self-employed.
The IRS keeps an eye on income and deductions reported, especially by self-employed taxpayers. If you are self-employed, claiming deductions for travel expenses, keep a detailed log of trips, dates, and copies of receipts so you may prove the distinction between personal and travel costs. Deducting home offices is still tricky, too, so be sure that your work area is used exclusively for business; family room/offices do not count.

Bookkeepers are excellent when helping you keep accurate records of income and expenses. We would be happy to assist you in maintaining accurate records. Contact us, and let us now how we can help!