1. Basic Record Keeping Requirements for Tax Purposes You MUST keep: 1.Receipts 2.Sales Slips 3.Invoices 4.Bank Deposit Slips 5.Cancelled Checks 6.Other Documents to substantiate – Income, deductions, credits 1

2. Adequate and complete Recordkeeping 1.Explain items on your income tax return. 2.Source documents are your proofs of your deductible expenses 3.Log or diary for deductions for travel, transportation, entertainment, business gifts 4.Time and place 2

3. IRS Publication 583 Starting a Business and Keeping Records Order Publications at www.irs.gov 3

4. How long should records be kept? 3 years after the return is due for filed, or, 2 years from the date the tax is paid, whichever is later 4

5. Indefinitely! 1)Change your method of accounting 2)Property – basis of original or replacement property 5

6. Employee Records 4 years after the date on which the tax return becomes due or the tax is paid, whichever is later. Publication 15 Employer’s Tax Guide 6

7. Separate Checking Accounts 1)IRS recommend opening a separate checking account for your business. 7

8. Accounting Methods Cash Method – Report all income in the year you receive it Deduct expenses only in the tax year in which you pay them 8

9. Accrual Method 1)Report income in the year you earn it regardless of when you receive the payment 2)Deduct expenses in the tax year you incur them, regardless of when you pay them 3)Business that have inventory for sale to customers must use an accrual method for sales and purchases 9

10. Publication 538 Accounting Periods and Methods 10

11. Accounting Computer Software Quickbooks – www.journeyed.comwww.journeyed.com www.quickbooks.com Free Trial Peachtree – Staples (rebate) 11

12. Sole Propietor Schedule C or C-Ez Form 1040 Schedule SE – Self Employment Tax 12

13. Pub 541 Partnership 1.Schedule K-1 2.Form 1040 3.Form 1065 13

14. LLC One person – Sole proprietor 2 or more - Partnership 14

15. Form 8832 Entity Declaration 1)2 or more people --- Partnership 2)1 person business ----Sole proprietor 15

16. Paid Preparer You are legally responsible for your tax return Avoid preparers who claim they can obtain larger refunds than other preparers Avoid preparers who base their fee on amount of your refund Ask questions and get references Person’s credentials Never sign a blank tax return Will the preparer be around months or years from now? 16

17. Deductions Everyday costs of doing business: Utilities Office supplies Licensing Are deductible 17

18. Travel, Transportation, Entertainment Traveling overnight away from home: Public Transportation Operating and maintaining your car Meals, Publication 463 (per diem rates) Lodging Keep your receipts! 18

19. Transportation Getting from one work place to another in the course of your business Not away from home 19

20. Business Entertainment Expense Necessary – you can proof it Taking your clients out to lunch. Publication 463, 50% limit 20

21. CAR (all business) Use for business only 100% Full cost of operating it Deduct it all 21

22. CAR (both business & personal) Divide expenses on the basis of mileage Compute a business percentage Standard Mileage Rate – reduce burden record keeping. Business mileage x standard rate, must use the mileage rate the first year. Later years you can alternate. Actual business expense. Parking fees and tolls are deductible 22

23. Business use of home Maintaining your home as a business expense Regular use of your home. 1.Mortgage interest 2.Insurance 3.Utilities 4.Repairs 5.Depreciation or Rent 23

24. Other Requirements A.Store inventory B.Child Care Business Form 8829 & Form 1040 Publication 587 Business use of your home 24

25. Start Up Costs Expense to set up your business After a 180 months period to deduct Publication 535 25

26. Depreciation Used in the business Useful life longer than 1 year Wears out, becomes obsolete Deduct over a number of years Can not depreciate land 26

27. Method MACRS Modified Accelerated Cost Recovery Systems 27

28. Section 179 Deduction You can to recover all or parts of the cost of certain qualifying property up to a limit by deducting it in the year you place the property in service Disadvantage : cannot take Earned Income Credit and other credits, full exemption and deductions Publication 946 How to depreciate property Publication 535 business deduction 28

29. Self Employment Tax SS Medicare When you are employed your employer paid half and you paid half When you are Self employed, you pay all 29

30. Estimated Tax Use form 1040 ES Worksheet to figure amount of Estimated Tax 30

31. Regular use test Occasional or incidental 31

32. Operate your business out of your home Home: house, apartment, garage, condo, mobile home, studio, barn, greenhouse 32

33. Qualifying for a deduction 1.Exclusive 2.Regular 3.For your business The business part of your home must be one of the following: Principal place of business Place where you meet clients Separate structure 33

34. Exclusive Use Test Use an area for business only Room or separate identified space 34

35. Exception to the Exclusive Use Test Inventory or product storage Day-care facility 35

36. Principal Place of business Exclusively and regularly for administrative or management activities No other fixed location 36

37. What are Administrative/Managerial Activities? Billing Books and records Ordering supplies Appointments Forwarding orders or writing reports 37

38. Business Percentage 2 methods Area Method Number of rooms method 38

39. Area Method 1.Area Method (square footage) Area used by business Total area of your home Example: Office 240 square feet Home 1200 square feet Form 8829 39

40. # of rooms method Number of rooms Method. The number of rooms used for business The total number of rooms You can use this method if the rooms in your house are about the same size. Form 8829 40

41. Types of Expense Business activity: Expenses related to the business activities are fully deductible advertising, taxes, car, salaries, travel Use of home: 1)Direct: painting, repair in area of business 2)Indirect: hoa 3)Unrelated: 41

42. Expenses Landscaping Painting business office Utilities Repair to roof of house Repair to business office Painting of family room 42

43. expense Real estate tax Mortgaget interest Insurance Rent Repairs Utilities an services Depreciation Carry forward to future years Pub 587 43

44. IRS Training www.irs.gov Click on the Business tab On the left click on the Starting a Business link At the bottom click on the Online Learning and Education Products bullet Click on the Small Business/Self Employed Virtual Small Business Tax Workshop 44

45. Order Publications IRS (free) How to order publications: www.irs.gov Click on the Business Tab On the right, click on the Forms and Publications link. In the Order section, click on Forms and Publication by U.S. Mail In Search box type in the Publication you want to order. Continue with the ordering process. 45