Tax audits don’t have to be the harbingers of IRS doom! So before you try to hide all your assets in an off shore account, exhale and read on. By practicing a few easy and practical steps, tax time, and yes, even an audit, can become nothing more than business as usual. By practicing prevention, you won’t need a cure
- Keep accurate records. A monthly folder with all your business receipts filed appropriately can save you a migraine at the end of the year! Keep a sheet of paper with categories on it such as postage, meals, gas, conference fees, etc., and write the amount of the monthly expenses in the correct category. Total the individual categories at the end of each month. Then, total the individual monthly category totals at the end of the year and voila! You’ve got your monthly and yearly expenses completed.
- Declare all income. You edited Sally Jane’s manuscript for $50 (we wish editorial only cost that much!), took your trusty U.S. Grant and bought some bling for your iPhone and never thought about it again. Ahhh, but you may have a rude awakening in the future if Sally Jane declares you and that $50 as a writing expense and kept her cancelled check for documentation. So, do yourself a favor, before you get your bling, copy the check, deposit it, put the amount on your monthly income sheet, then go shopping! It’s all about checks and balances, people.
- Become intimately acquainted with a Schedule C. If you file as a “sole proprietorship”, then you definitely want to know exactly what a schedule C is and how to correctly fill one out. Simply put, if you’re self-employed, it’s the profit and loss statement for your business. Even if you have a paid tax preparer, you want to know the ins and outs of a Schedule C so that you understand how the IRS determines whether or not you’re truly pursuing a business or are you playing with a hobby.
- Know what your legitimate expenses are. Here’s a list of some: phone calls, publicity and promo expense, conference costs, legal fees, mileage, agents’ commissions, postage, etc.—there are many more, but use common sense. You may be able to explain the mani-pedi you have each week as your writing reward, but be prepared—the IRS may not agree with you!
- Get help if you need it. There are many tax professionals and resources available to help you. Don’t let the expense deter you, either. Many will give free advice, even do taxes for free during the tax season. If you can’t afford a CPA, H&R Block or a bookkeeper, find free help or call the IRS—they will answer all your questions and back those answers up with free publications to walk you through the process. Ignorance is no excuse—if you’ve got the internet, you’ve got the help you need at the IRS website: www.irs.gov .