Why accurate records are a no-brainer when it comes to a tax audit
Running your own business comes with a set of obligations as well as providing you with an opportunity to create a successful venture.
One of these specific obligations is to keep accurate records of your business transactions so that you can do your taxes quickly and efficiently, providing supporting information as and when you need it.
Here is a look at ways to help get your taxes in order, including the dangers of mixing business with pleasure, the need to understand home office deductibles, and why accurate records are a no-brainer when it comes to a tax audit.Why accurate records are a no-brainer when it comes to a tax audit.Click To Tweet
One of the classic mistakes made by small business owners is when they mix business with pleasure and don’t create a clear distinction between the two when it comes to filing their taxes.
If you are a home-based business it can sometimes be easy to crossover between what is personal expenditure and what can be classed as a genuine business expense, but it is fair to say that the IRS don’t like to see you co-mingling your expenses.
If you fail to keep separate records there is always the chance that you could either double-up on your expenses or even miss claiming what you can legitimately deduct.
A good way of helping you track your personal and business expenses and help you to split them out would be to use a business credit card for charges that you can claim against tax.
You can check here for details of credit cards for small businesses, as this would be a simple way of avoiding mixing business with pleasure and facing unwanted questions.
Using your home as an office
There are obvious attractions attached to running your business from home, such as lifestyle and lower overheads, but in order to qualify your home office as a legitimate business expense, you have to ensure that it is used exclusively for that specific purpose.
In case you are in any doubt as to what this means, if you were doubling up your kitchen table as a place to work when breakfast is done with, you wouldn’t be able to deduct it. You need to have a dedicated room, space, or office in your home to be able to deduct some of your housing costs.
Some people might be a bit wary of attempting this sort of deduction as it can sometimes put you in the IRS spotlight for being audited, but it is a significant annual expense to be able to claim.
Check with an accounting professional and if they believe you are perfectly entitled to take advantage of this deduction, it makes sense to consider using these rules to bring your taxes down.
No margin for error
It feels good to be confident that your accounting records are under control and accurate, and it is much better to make every attempt to keep good records than trying to plug the missing gaps with some guesswork.
The obvious drawback to not keeping good records is that if and when you are audited, you are going to struggle to justify your number to the IRS.
Save all of your receipts and use a software package to record all your income and expenses records.
If you are a home-based business you will want to concentrate on generating an income rather than focus on facing an audit, so work on keeping everything in order so that you know where you stand and what you can deduct. This will make filing their taxes a lot easier.
John Pearce is a small business consultant who shares his knowledge of business matters at a range of small-business blogs. From tax tips to paperwork, marketing and legal matters.