|
Good
recordkeeping can maximize business deductions
By Kay
Bell • Bankrate.com
Small business owners know the importance of watching
every dollar spent. Attention to accounting is doubly important
when it comes to taxes, where careful tracking of expenses can cut
a business's tax bill.
This organization could pay off for you at tax-filing
time, especially if you deduct entertainment and transportation expenses.
Keeping timely and accurate records will not only make your tax return
easier to prepare, it also will help protect you from the Internal Revenue
Service if your return is ever examined.
You don't have to invest in an elaborate recordkeeping
system. Keeping the expense verification you'll need for tax time can
be as simple as entering the data in a diary or account book. The key
here is to faithfully enter the expenses.
It's also a good idea to keep evidence -- receipts,
canceled checks, bills -- that, along with your records, supports your
expenses. Documentation is not necessary in every case; IRS examiners
don't require receipts for expenses less than $75 (except for lodging
costs). But it doesn't hurt to get in the habit of collecting the information,
whatever the cost. And be sure to jot on the receipt or in your diary
the amount, date, time, place and description and the business purpose.
The business purpose is especially crucial for
deducting entertainment and meal expenses. For entertaining expenses
to be deductible, tax laws require the participants to discuss business
-- and for longer than just five minutes during a two-hour event
-- directly before or after these out-of-the-office business meetings.
Even then, only half of the entertainment and meal costs are deductible,
so complete evidence of expenses is critical to getting the most
out of your deduction.
If you use your car
for business, you'll probably want a separate auto diary to
record mileage, tolls, parking fees and general upkeep costs. You
may not need all these figures, depending on which method you choose
when deducting auto expenses, but it doesn't hurt to have them.
It's easier to discard unnecessary information in April than to
reconstruct all those business miles.
-- Updated: Jan. 16, 2004
|
