Tax time is right around the corner. Although I am not a CPA or tax adviser here are some tips that I have received from my CPA's over the years.
1. If you have an S-Corporation, remember you must issue at least a yearly paycheck for a reasonable wage for the stockholders of the corporation. Check with your CPA on this.
2. Take odometer readings on all business vehicles at year end to determine total miles used per business vehicle.
3. Keep a timely diary of your business activities during the year. This is essential for IRS documentation.
4. Record your monthly transactions on a computerized system. The best selling and most user friendly software is Quick Books Pro.
5. If you are going to buy a business asset in the next six months, buy before December 31, 2008. You can write off these assets, up to $250,000 depending on your net income. This increased deduction may be lowered in 2009.
6. On ALL expense receipts, you should write down the classic IRS questions, such as: Who, What, Where and Why? In an IRS audit, the proof of payment only is not enough documentation to support the expense.
7. All cash or non cash charitable contributions must be proven by receipt, cancelled check, or other proof of donation. The amount of detail required on a receipt for it to qualify as proof of donation increases as the value of the donation goes up.
8. If you have inventory in your business, be sure to have an accurate count as of December 31, 2008.
9. Temporarily transfer money from your personal bank account to your business to increase the current assets of your business so that your financial statements look better for financial presentation purposes. This goes on your books as a loan from you to your business that is repaid when you transfer the money back in 2009.
10. If you are a cash basis taxpayer, it is suggested prepaying 2008 expenses that will not be invoiced until 2009, assuming you have enough money in your bank.
11. If you are an accrual basis taxpayer, wait until January to pay your bills. The expenses can be taken in 2008 when you were billed, but the money stays in your bank account. This helps the balances of your financial statements for December 31, 2008.
12. If you have minor children living in your home, you could issue a paycheck to them form your proprietorship, write it off as an expense, and the child may pay little or no income taxes. The work the child preforms for the proprietorship must be documented in detail and correspond with the amount paid. Check with your CPA on this as there are payroll tax reports required to do this.
13. If you expect to be paid large amounts of income at the end of the year, please see your tax advisor so they can advise you on how to handle this income in order to decrease the tax impact.
15. If need to set up a pension plan or want to a second opinion about your over all investment portfolio contact you CPA.
Again I am not a tax advisor or CPA, Please check with them on all these suggestions. This is a reminder and guideline for preparing for the upcoming tax season.
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