|
|
RECORDKEEPING ISSUES IN CASE OF
AUDIT OR REVIEW
There are some sensitive areas where care must be taken in reporting
your business income and expenses. The following list will give an
overview of entries which have the potential of being mishandled and
which could create problems, especially in review or audit-type
situations.
Gross income
Must be verifiable from bank statements. Any deposit not income,
i.e. a loan or refund, must be clearly identified and documented.
The gross should reconcile with any appropriate sales tax returns.
Discrepancies with deposits should be explained and proven.
Insurance
Some insurance policies are deductible and others are not. It is
possible for some insurance to be partially deductible. Identify
policy payments by coverage as well as dollar amount.
Shareholder loans
Loans to shareholders, especially majority stockholders are red
flags for the IRS. In order to be proper, each loan must be
carefully documented as to term, rate of interest, and the ability
of the shareholder to repay. These are three prime
considerations(but not the only ones).
Vehicle use/personal use
When a car's use is divided between personal and business use, extra
care is required to keep a detailed record of mileage for each.
Expenses and depreciation can then be pro-rated properly for the
allowable business use deduction.
1099's, W-4's, W-9's, I-9's
The 1099-MISC form is given to sub-contractors and other individuals
who have been paid over $600 during the year. There are stiff
penalties for paying an individual as a subcontractor, who is really
an employee.
The W-4 is required to be filled out by all employees detailing
their allowances. It is kept on file by the employer.
The W-9 is a request by the payor of the payee for the social
security number or other tax identification number and whether or
not that payee is subject to backup withholding provisions.
The I-9 is a form required to be filled out by the employee and
employer in order to verify employee eligibility status.
Travel & Entertainment
Federal Rules allow for the deductibility of only 50% of your food,
and entertainment costs; they must be detailed by date, place, with
whom, and business purpose. Travel expense may be fully deductible,
but it must be substantiated as to cost and business purpose.
Minutes of Meetings
All domestic corporations are required to have at least one meeting
a year and the minutes of that meeting formally recorded.
Personal expenditures paid by your corporation
In a closely held corporation, it is often times easy to have the
corporation pay the tab for some personal bills. Generally speaking
these expenditures become constructive dividends to you, thereby not
deductible to the corporation.
Bills of sale for all equipment
The purchase and sale of equipment requires documentation detailing
description, date, and amount of the transaction.
Inventory
Whether you are on an annual or fiscal year, a detailed inventory is
required at the end of the year. List your inventory by item number,
description, quantity, and cost method you are using.
The above-mentioned items must be reconciled to your business tax
return. This may seem like a lot of extra effort, but failure to
have this documentation can lead to possible loss of the tax
deduction and extra taxes, penalties and interest charged to you.
|