Whether you are an individual or a business, record keeping plays an important role in supporting a filed tax return. If you are audited at the federal or state level, the state of your record keeping plays an important role into the final determination of any potential audit changes to your tax bill. More importantly for a business, the better your records are, the more accurate your financial information is. Business is driven by profitability, and accurate records will paint a clearer picture for decision makers. That also holds true for self-employed individuals who file a Schedule C (Profit or Loss From Business) or those who engage in rental activities and file a Schedule E (Supplemental Income and Loss). These two forms, and Schedule F – Farm Income, rely on records kept throughout the year. You will need income and expenses for each.
In the 30+ years I’ve worked in the accounting filed, I have seen an array of record keeping. In the pre-computer days, businesses kept financial information in ledger books, or used 4, 6, or 13-column paper to summarize annual activity. I sifted through forests of paper. Now many small businesses use programs like QuickBooks to track their business, but trust me, I have seen some pretty bad hack jobs in QuickBooks and other accounting systems which make it quite difficult to figure how a business really did. With individual returns, I’ve been handed plastic bags and shoe boxes with receipts. I’ve had people come in with missing information where deductions have been lost because there is no idea as to the amount.
For me personally, record keeping is a breeze. But I understand how daunting keeping track of financial information can be for others. With the end of 2013 fast approaching, before you know it you will be trekking to your favorite CPA to get that big refund you believe you are receiving (for that Caribbean cruise you’ve been planning), or you will be waiting until April 14th to show up because you’re pretty sure you owe money (I don’t suggest waiting – at least bring your info in early so you can know in advance how bad it may be).
Focusing on individual taxes – now is the time to begin gathering your 2013 tax information. You won’t receive your W-2’s for wages, 1099’s for interest, dividends, social security, unemployment and retirement income, K-1’s for partnerships and trusts, mortgage interest statements, etc. until the late part of January at the earliest. But there is information you should think about pulling together now. Here is a short list of some items you should be considering (if applicable to you):
- Sales of stock/real estate – will need date purchased & cost, date sold & sales price
- Alimony received or paid
- Business miles
- Student loan interest
- Tuition paid
- Dependent care expenses
- IRA contributions
- Moving expenses
- Casualty/Theft losses
- Estimated taxes paid
- Real estate taxes paid
- Personal property taxes paid
Yes, there is a lot of information that can go into your tax return. As a CPA, the more information I have, the better I can find any potential tax savings. Of course, having this information in some sort of order is always a plus.