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Staying Organized

An ounce of prevention is worth a pound of cure. Staying organized throughout the year is the best way to be prepared for tax season. Utilize accounting software like Mint.com, Quicken or Quickbooks. Set aside time each month to download and classify the activity from your checking, savings and credit card accounts. At the end of the year 90% of the work required to prepare your tax return will already be done.

Outsource

If you can’t make time to keep the books yourself on a regular basis or if you aren’t inclined to learn an accounting software package, find a competent bookkeeper in your area with whom you can build a relationship. A good bookkeeper shouldn’t cost more than $40-50 per hour and depending on the size of your business you should expect to engage them for 3 – 4 hours per month.

The Home Office Deduction – A Trojan Horse?

The deduction for home offices sounds great at first – identify a discreet area of your home that is 100% dedicated to work, allocate utilities, insurance, rent or depreciation, etc to that area, and take the deduction on your tax return. The problem is that taking this deduction saves the average taxpayer no more than a few hundred dollars but because it is significantly abused it increases the average audit risk from less than 1% to more than 5%. The risk reward might not be worth it. Consult your tax preparer for more details.

Can I can deduct that?

When you own your own business you can deduct expenses that you might have thought were “personal” in nature. For example, internet and mobile phone expenses are legitimate deductions to the extent these services are used for business purposes. Allocate these utilities between business and personal usage and deduct the business portion.

Documentation

With a few exceptions, bank and credit card statements will serve as adequate documentation in the event of an audit. Go electronic and get rid of that box of receipts. Download and save your banking activity and stop saving boxes of paper receipts – your tax preparer will spend less time on your return and you’ll spend less on their services.

Getting and staying organized on a regular basis is the best way to reduce the stress of tax season. Again, always consult with a qualified professional with regard to your personal tax situation.