The men and women in the construction industry are generally not trained in the art of running a business or keeping records that satisfy the IRS. But it’s not hard, once you know how to do it, and it can be done in 30 minutes a month. These ten tax tips will help you get started.
Tax Tip #1: The IRS requires you to document your business income.
Open a bank account for your business and deposit all business income, both cash and checks, into that account. The advantage here is that you will never need to earn full income again; the bank supplies that is listed each month as Total Deposits.
Tax Tip #2: You’ll pay less tax when you keep receipts for all business expenses incurred.
For the self-employed, tracking expenses from receipts is faster than any other method. If you don’t get a receipt, make one and add up all expense receipts monthly. Pay all expenses from your business bank account or a credit card reserved exclusively for your business. If you pay in cash, write it down on your receipt.
Tax Tip #3: You won’t pass a tax audit if you don’t keep proper mileage records.
For every two miles you drive on business, you can deduct more than $1 of taxable income. But, if you don’t keep a mileage record, this deduction will not be allowed. Keeping your log in the car will make it easier to track mileage; even a 2 mile drive is worth noting.
Tax Tip #4: All the tools you need for your business are deductible.
Every hammer, nail, brush, or other tool needed for your business is a deductible expense. Tracking these expenses can lower your tax bill and ensure you have the tools you need to make the best money.
Tax Tip #5: If your garage now stores your tools and equipment, instead of the family car and bikes, you may be able to deduct it as a home office expense.
It’s not just an office that can be deducted under the category of home office expenses; You can also deduct storage space used exclusively for business.
Tax Tip #6: All barter income must be reported.
Example: A roofer changes his job to a builder installing his new kitchen cabinets. Both must report this trade as income; the reported value is what they would have charged for those services.
Tax Tip #7: Items purchased to complete a job can be immediately deducted; items purchased for inventory are deducted as sold.
Example: If a carpenter buys lumber for a job, he can be deducted in the year of purchase, but if he buys lumber to build toy boxes to take to the local flea market, he may have inventory expenses. The cost involved in taking inventory must be carried over to the next year and is not deducted until those boxes are gone.
Tax Tip #8: No matter how good your tax professional is, if they don’t provide all the necessary information and figures, your tax return will be wrong.
It’s up to you to add up your income, expenses, mileage and other costs. Arrive with a detailed list of expenses and a list of questions. A good tax preparer will answer your questions and help you learn more about keeping records for the IRS.
Tax Tip #9: Without receipts, you will fail an IRS audit.
Put your tax receipts in a box or bag and keep those records for a minimum of 3 years from filing; Tax returns must be kept for a minimum of 10 years.
Tax Tip #10: Record keeping doesn’t have to be complicated or involve computer software; a simple method is better for those who are not accounting experts.
Using monthly bank statements for total income and actual receipts for total expenses is quick; With this method, most freelancers can do their monthly bookkeeping in 30 minutes or less.