As a business owner, you know that a year-round regimen of good recordkeeping can also make filing accurate tax returns easier. And yet, we often fall short of our best intentions.
If your recordkeeping has fallen short of your expectations, never fear. Below is a list of important documents you should be gathering now to expedite your filing and save you time and money.
The obvious components of good recordkeeping are good organization, and knowing which documents are important to have and how long to keep them. This even applies to small-business owners who leave the preparation of their tax returns to professionals.
The envelopes of some important tax documents will actually have “important tax document” printed on the front. But, also be on the lookout for emails from financial institutions, brokers and others notifying you that tax documents are available via their websites.
This may strike you as common sense. But we live in a noisy world and it’s easy for important documents to get buried or lost in the shuffle.
Small-business owners can use this list to help them begin to compile the documents needed to fill out their tax returns, and to request replacements if any have gone missing:
- Prior year federal and state tax returns. Keep all business tax returns permanently, along with insurance records and legal correspondence
- Business income records. Keep a record of all income in a ledger book or use a software program. If storing your records electronically, make sure the system is compatible with IRS electronic storage system requirements
- Receipts, invoices and bills documenting business expenses. Keep these in addition to credit card statements because they are more detailed accounts of your transactions
- Mileage log documenting car use for business purposes. Keep track of the purpose, date and length of trips
- Utility bills and records of repairs done to home office. Keep track of these expenses because those attributable to the office are business expenses. Utility and other household expenses will be deductible based on the percentage of your home used as an office. A special safe harbor deduction now allows taxpayers to take a home office deduction of up to $1,500, depending on the square footage of the office, without the need to save receipts to calculate relevant home expenses.
- Health insurance payment receipts. Keep these and other documents that substantiate the tax credits and deductions you claim
Many important tax documents also are delivered to the IRS to ensure accurate income reporting and find audit candidates. Among the documents sent as part of this matching system are forms W-2 (wages), 1099-MISC (self-employment income and other miscellaneous types of income), 1099-INT (interest paid) and 1099-B (sale of stock).
If something shows up in the mail and you are not sure if you will need it in April, save it because a tax professional can help you know exactly what you need based on the type of business you operate.