What Does the Entrepreneur Need for Tax Season?
There are basically thirteen categories of items a tax preparer will organize for the tax return. Below is your tax season checklist:
1. W-2s; (if you have worked for someone else and due to you by the second week in January)
2. 1099s from all brokers, lessors, and contractors;
3. 1099s from all institutions that reflect interest and dividend income, brokers for stock information, mutual funds, and particularly 401(k) and IRA distributions (these can easily be overlooked, never sent, or filed in the wrong place as they arrive well into the following tax year), and mortgage interest statements (usually also on your December 31 statement);
4. W2-P or 1099-R for pension and annuity income;
5. Schedule K-1 if you are involved in partnerships or S-corporations;
6. 1099s and year-end statements for unemployment compensation, Social Security income and state tax refunds or taxes paid;
7. Contracts for the purchase and sale of equipment (to be depreciated or expensed out);
8. Escrow statements for the purchase and sale of property;
9. Confirmations from charities for donations of $250 or more and/or written receipts from charities or bank records for donations under $250;
10. Unreimbursed expenses for nights away from home and the number of nights away from home to qualify for the per diem deduction currently at $59 per night and eighty percent deductible;
11. Separate business expenses by category such as fuel, repairs, tolls, supplies, contract labor, tires, insurance, telephone, faxes, copies, postage, travel, moving, small office machines, tools, additives, cleaning products, any personal non-food items, truck/car washes, association memberships, licenses, and special equipment;
12. IRA contributions, or SEP, Simple IRA, Keogh, and/or UNI 401(k) plan contributions. Contributions to these plans can be made up to April 15 of the next year as long as the plans are in force the prior year.
13. Other taxes paid such as Estimated (usually paid quarterly), Property, Sales, Highway Use (2290), County, State, Local, and Capital Gains tax.
There are two ways of computing vehicle deductions. One is computed by mileage, which will require a log entry per use or trip. The other is depreciation calculated from percentages dictated by the IRS. Remember to always include interest paid on a vehicle contract even after the depreciation is calculated if depreciation is the method of choice. Of course, the method that maximizes the business vehicle deduction from gross income would be the method to choose.
Some people make a spreadsheet and log all of their entries on their computer. Others use programs that categorize their expenses for them and spit them out to a tax program. Some dutious folks will staple their receipts together in a particular category along with their calculator tapes. Then, there are those that do well to throw their receipt into a shoe box and let their wives sort them out.
Just remember, the more you do, the less it will cost you. Also, if you are keeping your thumb on things, you are always up to date on your tax position. And always, always git ‘er done early!
Isn’t it wonderful how easy this all looks when it is broken down into categories? You are well informed on what bookkeepers, CPAs, the IRS, tax attorneys, and bankruptcy courts are looking for way ahead of time.