Article The Taxman Cometh ...and Good Things In Small Packages

Most distributors have their taxes prepared already, but some might be burning the midnight oil doing them right now. In any case, we cannot give you expert tax advice beyond some simple guidelines, but while this tax season is fresh in your minds, we can pass on some advice that might help you revise your returns, and to make next year’s tax preparation easier.

We strongly urge you to write down every expenditure, income, and mileage; keep receipts in a filing system that makes sense (no, a shoebox just won’t do!); and use a tax preparer knowledgeable  in small business taxes. This allows you to take advantage of the unique deductions allowed small businesses. Don’t forget accelerated depreciation on new equipment purchased.

Whether you’re a sole proprietor, limited partnership, or incorporated, it’s imperative that you don’t mix your normal family tax information with your business information.  If you’ve been using the family checking account for business, let’s face it—it’s probably a mess. The time to unravel and detail the mess is before you dump it all on your accountant’s lap. Also, open up a separate business account at your bank so you don’t make the same mistake next year.

Some people are unsure about how long to hold on to old returns and supporting materials in case of an audit, so here are rules from the Internal Revenue Service:

•    The IRS has three years from either the due date of a return or the date the return is actually filed—whichever is later—to initiate an audit. For instance, if you filed your 1998 tax return on August 15, 1999 (after filing for the four month extension), the IRS would have until August 15, 2002 to audit that return. There’s also a six-year statute of limitations if they feel their has been a substantial understatement of income.  Be sure to check with your state’s tax agency as well. Statutes of limitations vary by state; some are as long as four years.

•  A safer rule of thumb is to keep your returns until the first day of the year that is five years later than the year to which the return applies. For example, your 1999 return should be kept until January 1, 2004.  That means that as of this January 1, 2002, you could throw out your 1997 return. It’s also very important to keep all the supporting documentation and information for that specific return until you toss the return—don’t just keep the return!  Yes, it’s a hassle to keep all those stubs, receipts and scribbled notes, but better to be safe than sorry.

•  It’s worth the cost of using a professional tax preparer to get your returns done correctly. You’ll have peace of mind because your taxes were prepared properly—and that you got every deduction allowed!

There is a fantastic resource that many people never think of—the IRS itself! Their offices can be daunting and their booklets incomprehensible, but their website is very well laid out. Go to www. IRS.gov. On the screen you’ll see a Search box; enter “small business”, click Go, and you’ll have access to pages of information specifically for your needs, as well as rules and regulations.

As long as you’re on the internet, be especially sure to visit the SBA Women’s Business Center at www.onlinewbc.gov —even if you’re male. This is a great resource for women entrepreneurs, but the majority of the information applies to any small business owner. It’s a treasure trove of information, from setting it up, getting financing,  cash flow, inventory, expansion, marketing, and so on, and it’s constantly being updated.

Using these tips should help you through the year. We hope you have many happy returns!