As many of you know, my motto is to keep it simple (or as simple as it can be). This week's post will be a little different because I am not going to write about probate or general estate planning tools. This week, I am going to share with you a couple of tips that will reduce the likelihood of you having problems with the IRS.
Before I go there though, let me just state how important it is that you engage in tax planning before January 1st of the following year. We work regularly with Accountants, CPAs, and other tax advisors and one of the biggest concerns I hear from them is that clients often times don't understand that tax "planning" needs to take place during the year in which you earn the money...not the year in which you do the return.
So, here are some tips that will help you avoid problems with the IRS:
#1 - and while the rest of these are not in any particular order, this one is the most important...
Find a qualified tax advisors who you can trust, and let them help you plan year-round for paying less taxes on your next return. But, don't wait until next year simply because you haven't been planning thus far...find one asap!
#2 - Keep personal and business records completely separate - which means you actually have to keep the money separate as well, and actually make records at the time you incurred the expense. For example, amongst other things you want to keep receipts and records of who attended your business lunches. You should also avoid commingling personal and business accounts
(not just for tax purposes, as this could have other major legal implications as well). A qualified tax advisor can work with you to ensure you are properly documenting what is necessary for tax planning purposes, but you have to actually talk to one to make that work...see tip #1.