No matter if you are eighteen and just finished school or sixty-five and recently retired, you will have records that you will need to keep. Some records will need to be kept for longer periods of time than others are.
Knowing what to keep, how to keep it and what to throw out can help you eliminate clutter. Also, having your important records handy is also important in case of an emergency or a life-changing event.
Keeping your Tax Returns
Of course, one of the first things you will have is your tax return. The last three years of tax returns should be kept on file in an accessible place. After that time, you may wish to destroy your returns; don’t just throw them out. Remember that your tax returns contain some of your vital information, such as your mailing address and your social security number. You do not want that information lying around in this day and age so make sure that you store them securely in your home.
Your receipts and financial records associated with your tax return should be organized and kept with that year’s respective return. If for some reason the IRS audits you, you will have everything handy in one place. Having these records organized at home will save you time in having to request them from your tax professional or accountant if the need arises to have a copy of them quickly. If it is necessary to keep receipts and financial records in another location, then make sure you have copies of these receipts with the tax return.
A good tip on keeping receipts is to make copies of them on an actual copy machine such as a Xerox or Mita. This is especially imperative for any thermo-paper receipt that you have. The impression on thermo paper, which nearly every retailer uses now a days, will faded off in one to six months, literally leaving you with a blank or difficult to read receipt. Also, store these receipts in a cool dry place, as heat will make them appear burned or turn them black making them completely illegible.
If you have receipts that have been created using carbon, make sure that your copy is legible and dark enough to be read after some handling. Remember that most carbon styled receipts will “crinkle” or turn dark when folded or creased so store them flat in a cool dry place. These receipts will also turn dark if exposed to too much heat, rendering them illegible.
Having everything in one place will also be useful if you are being audited in more than one year. Tax returns can be destroyed after three years, but keep in mind that if the IRS finds something amiss in your current tax return, they can go back farther than three years to audit if they suspect fraud.
Keeping your records straight will benefit you immensely in the long run. It will aide in keeping clutter down, expedite finding them in a pinch and save you time and money requesting copies. Remember to also have other important documents, such as birth certificates and life insurance policies stored safely and securely as well. You never know when you might need them.
Tax Planning for the Entrepreneur or Small Business
There is a certain excitement in the starting of a business. Everything is new, or new to you, and there is so much to do and to complete. There are bills to pay, supplies to order, accounts to balance, staff to train, and taxes to pay.
If you have recently started your own business, be it accounting or zoological consulting, you are required to report your income to the Federal government, and most often to your state and local government. There is a wealth of information out there on self employment, working from home, running small businesses – but not much is ever really said about taxes for the sole proprietor.
Depending on your residency, you may be responsible for city, county, and state income taxes as well as sales taxes. You will need to contact your local government in regards to the rates and time frames in which these taxes need to be paid. Keep in mind that different areas have different controlling bodies and therefore may also have different tax rates. If you conduct business in more than one location, you may need to be informed of the different tax structures in those areas.
Federal income taxes are required on all worldwide income and that includes self-employment income. If you work for someone who pays you cash, keep in mind that “under the table” does not mean tax-free. There is no such thing as under the table income. If you work for yourself, you will be required to keep track of your income and expenses. These are both reportable on the Schedule C form from the IRS.
You may also be required to send in quarterly tax payments to the IRS. Quarterly tax payments are made to the IRS, as part of the pay-as-you-earn system of tax paying. While employed persons have withholding taken out of their checks every payday, self employed persons must pay that withholding themselves and that is what the quarterly payments are set up for.
Consulting an accountant and a tax professional are highly recommended for anyone starting a business, especially for the first time. There is also a wealth of information, most of which the IRS will send you printed copies of free of charge, at the IRS website. Don’t be surprised at tax time; learn about your tax liability now!
A Myriad of Tax Filing Options
Requirements for filing taxes are fairly simple and now, with the help of electronic filing, your options on how to file are even more varied. Filing your Federal Income taxes is a necessary evil, but it need not be too complicated for you. Keep in mind that whether you file your taxes by hand or have them prepared by a service, they will need to be postmarked or received by the IRS no later than April fifteenth. If for some reason you are unable to file by this date, you will need to file an extension with the IRS.
The tried and true method of filing your taxes is to fill out the forms by hand and mail them to the IRS. If you are comfortable with your tax situation and have plenty of time to get your return postmarked, then this option may be for you. It can take six weeks or longer, depending on when the IRS accepts your return, for you to get your refund back by mail, possibly a shorter time frame if you have your funds direct deposited. With this method comes one major drawback. Someone on the IRS end will have to enter the return into the IRS computers. You must write clearly and legibly and anytime that someone is doing data entry there is the risk of error.
The IRS also has the Telefile system. Telefile allows you to file your simple return over the telephone. This can dramatically shorten the time frame in which the IRS accepts your return. IRS acceptance of a Telefile return can be within a few days. This will also decrease the amount of time it may take to receive a refund. The down side to this type of filing is that you can not use this system if you incur certain tax situations, for example, if you have self-employment income.
Electronic filing can be done now and is becoming more available every year. Most tax services, accountants, and even some tax software will allow you to electronically file your taxes. The IRS website even has free electronic filing for very simple returns. Some tax filing services also have online filing at their websites. You will have to research what types of forms and payment requirements are available for different services.
Your accountant can usually file your taxes for you as well. This is a great option if you work closely with your accountant and he or she has updated tax knowledge. Keep in mind that tax law changes somewhat every year and who ever you have prepare your taxes for you should be knowledgeable of these changes and qualified to file them for you. Even if you have your accountant or a tax service prepare your taxes, you are still responsible for what is on that return. Always review your return before it is submitted to the IRS.
There are dozens of tax services that will prepare and file your taxes for you. These services usually will have the most updated information and qualified tax professionals. Do your homework and do not count solely on advertising when choosing a tax service. One of the benefits to using a tax service is that you will usually have the opportunity to sit with a tax professional and ask questions during the preparation of your return. Stay away from any service or preparer that does not allow you to ask honest and straightforward questions.
No matter how you file your taxes, make sure that you do indeed file them. If you do not file your taxes, and you are required to do so, you may be charged with tax evasion. If you have questions regarding your requirements for filing taxes, contact a tax professional or the IRS.