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Tips for your 2011 Tax Return

January 4, 2012

Mark’s Bookkeeping Service (based out of New York City) offers the following tips to help you ensure that you’re as prepared as possible for the upcoming scrutiny of the IRS:

  1. If your business is a family firm, be sure to separate your bank accounts. The IRS heavily scrutinizes transactions between family members in a family business. If you want to be sure there’s no chance that any transactions you’ve made will be viewed as fraudulent or unrelated to business, you should keep separate checking accounts. Keep your own personal bank account for your own finances, and maintain a business checking account for any business-related expenses. If you stay vigilant about keeping your records clear and organized, the IRS shouldn’t have any reason to take issue.
  2. If your company is a small one with very few employees, the IRS might be suspicious if you’re making payments to independent contractors. In some cases, the IRS will even throw out these deductions as phony. To ensure this doesn’t happen, send each independent contractor a 1099-MISC, and also have them send back a signed Form 4669, Statement of Payments Received. The more documentation you have to prove your financial information, the better off you’ll be come tax time.
  3. Be sure to collect your receivables as soon as possible. If you haven’t been paid yet for outstanding invoices, it’s better to follow up on them sooner rather than later. After two months, overdue receivables tend to be about 10% uncollectable. But if you wait six months, those same receivables become 33-67% uncollectable. The earlier you follow up on these debts, the more likely you are to receive payment.
  4. Follow up on overdue customers. If one of your customers tells you that “the check is in the mail,” you should politely ask for the check number and the date it was written, so that you’ll be able to keep track of it as it comes in. If your customer is flustered or doesn’t want to answer this request, you’ll have a good idea that the check was never written, and that you may need to reevaluate this receivable.
  5. Protect your electronic financial files against the IRS. If the IRS decides to audit your business, they will examine their electronic files, as well as request additional files that may include information from outside the period that’s under the audit. If you supply more information than what’s necessary, you could be penalized for items the IRS isn’t even looking for. Instead, find a method that will isolate all financial data to only the specific year to which it applies. If you can’t find a better way, you can always back up each year separately at year’s end.
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