Preparing to file your taxes is never fun, but if you follow these five simple tips, you will enjoy a stress-free tax season.
Routinely Update Your Books
It’s in your best interest to set aside at least one afternoon a month and dedicate that time to updating your books. Not only will this provide you with up-to-date entries about the state of your finances, but this also means everything will be in order when the tax season rolls around. Consequently, you will be spared the stress of last-minute scrambling, which can cause errors and oversights in your paperwork.
Organize Your Receipts
Whenever you make a purchase that you believe qualifies for a tax deduction, you should promptly file the receipt. The prompt filing does two things:
- It allows you to accurately update your books.
- You can present the receipt to the IRS if you’re audited, effectively eliminating any questions they have about the purchase.
Know Which Expenses Are and Aren’t Deductible
One of the things you need to discuss with your accountant is what the IRS does and doesn’t consider a tax deduction. If you claim something as a deduction, but the IRS conducts an audit and says it isn’t deductible, you’ll face some steep penalties and interest payments. The biggest mistake people make is claiming something as a business expense while using it part of the time for business and the rest of the time for pleasure; common examples of this include a home office or a car. The amount the item is used for business determines if it’s a valid deduction.
Hire Family Members
If one of your family members is helping you with something that’s connected to your home-based business, you need to officially hire them. Not only does hiring family members help clear up any liability questions, but by formally paying them, you qualify for tax savings. The compensation you pay your family member decreases your overall taxable income.
Pay Attention to Carryovers
A carryover is an item that is only partially deductible within a year. There are many items you use for business that fall under this category, including:
- Net Operating Losses
- Home Office Deductions
- Charitable Contributions
- Farm Equipment
Carryovers are a very important factor when putting together your tax papers because they reduce your tax liability. If you want to save money, it’s important that you consistently remember your carryovers until their value as a tax deduction runs out.
With TPI Group’s professional team by your side, we will simplify the tax preparation process and help you save thousands of dollars in the long run. Contact us for more stress-free tax tips, or set up an appointment today!