Taxes Made Simple

1. Have a separate checking account for your business, and DO NOT intermingle funds between your personal and business accounts.

Not only will this make it easier on yourself or your accountant at tax time, it’s essential when attempting to defend the legitimacy of your deductions if you get audited.  As you can imagine, it’s substantially more difficult to convince an auditor that something is a business expense when you paid for it with your personal credit card.

Finally, if your business is in its early years and isn’t yet earning a profit, keeping separate personal and business checking accounts will go a long way toward persuading the IRS that your business is not just a hobby. (The hobby loss rule is a separate topic, but for now just know that it will cost you a great deal in taxes if the IRS decides your business is not a business[,] but a hobby.)

2. Keep source documents (receipts) for your expenses.

Having an up-to-date ledger and bank statements for your business checking account proves that you spent money on something, but it doesn’t prove that you spent it for a business purpose.  That’s why you need receipts in addition to your ledger.  Neither one alone will be sufficient for substantiating a business expenditure.

3. Understand the significance of “statute of limitations.” 

Imagine the feeling of being audited for your return from two years ago and having to tell the IRS agent that you’ve already thrown away all your receipts from that year.  The IRS can audit any return for up to three years after the return was filed or due, whichever came later.  Or, in legal jargon: the statute of limitations for a tax return is three years.  As such, you’ll want to make sure to keep your receipts and other records for at least that long.

4. Make sure that what you are attempting to claim as a deduction is, in fact, deductible.

Before taking a deduction for that trip to Florida with your business partner (read as: spouse), check to make sure it’s actually deductible.  Otherwise you may have to learn what the IRS is referring to when it uses the word “adjustment.”

5. Don’t lie on your taxes.

This one’s the easiest of all. Don’t mess it up.

For More Information, Take a Look at My Related Book.

See it on Amazon now.

A testimonial from a reader on Amazon:

"Quick and easy read. No fluff, just straight to the point and gives you more helpful information that you might imagine. If you are looking to get the bottom line information you need to start your business right then this book is a must have." R.L. Muhammad

Read more reviews on Amazon.