How To Prep Your Invoices For Tax Season
To make the tax filing process smooth and hassle-free, it’s customary that you gather and organize your receipts and tax documents beforehand. Whether your deductions are standard or itemized, filing your taxes the right way will ensure you’ve locked out all unnecessary inconveniences.
Prepping for taxes the right way will also speed up the refund process wherever it applies.
Receipts To Keep
During an IRS audit, it’s integral that you have every applicable receipt. The last thing you’ll need when filing for taxes is to prolong this season over sloppy handling of tax files. Recruiting the services of a tax professional is highly advisable for taxpayers who are unaccustomed to the intricacies of filing taxes the right way.
Tax experts not only assist you in keeping a close eye on the important documents but help you with complex calculations. Seeking such assistance can help draw you out of difficult financial situations. With an expert’s help, you may not only be able to score a large refund, but also avoid the need for one in the first place. However, there are certain receipts that you’ll need on hand if you’re a small or large business.
Self Employed or Small Businesses
Self-employed workers and small business owners must make use of accounting software, such as QuickBooks, to keep track of their finances. According to Bonnie Lee, owner of Taxpertise, an auditor’s scope is ‘considerably reduced’ when auditing for a small business who uses standard software.
For any small business owner, it’s imperative to keep the following documents safe:
- Invoices
- Receipts
- Sales slips
- Paid bills
- Canceled checks
- Deposit slips
You’ll be required to show the total income of your business for which you must secure the gross receipts. These will include:
- Receipt books
- Invoices
- Cash register tapes
- Deposit documents
- Form 1099-MISC
You must also save all purchase documents. These are documents that show the purchase and sale of items to consumers. These documents include the following:
- Invoices
- Credit card receipts
- Canceled checks
- Receipts that detail the amount paid, the payee, and the proof of payment
Business Expenses
These expenses include the costs of operating a business. You must secure professional help to better navigate the complexities of business expenses.
Note that canceled checks may not easily suffice for tax deductions here.
According to Bonnie Lee, proof of a business’s expenses will require additional documents. For example, credit card charges for business trips to relatively exotic places could easily be confused with luxury vacations. In such a case, other documents can be provided as proof.
At all costs, make sure you have the following documents intact:
- Invoices
- Credit card receipts
- Finance statements
- Canceled checks
- Cash register tapes
- Petty cash slips
Receipts To Keep For Taxes
The majority of taxpayers are required to procure any receipt as may seem fit for common eligible deductions.
Taxpayers must always be ready to produce any of the following documents:
- Receipts testifying deposits made to individual retirement accounts
- Documents of losses that entail worthless securities or bad debts
- Receipts testifying payments to household employees
- Receipts that may render you eligible for special tax benefits
- Supporting documents on real estate or home renovation costs
- Documents proving inherited or gifted assets
- Receipts outlining all expenses related to medical or dental costs
- Receipts of tax-deductible donations exceeding $250
- Receipts outlining dependent care expenses for working parents
- Interest receipts for student loans
Organize Receipts For Taxes
Managing taxable income should be less tedious than many make it out to be. Filing all necessary documents only requires taxpayers to secure and organize important tax receipts.
Accounting software can come in handy. Keeping a paperless record of your taxable and other income is the surest way to easily file for taxes. You can scan your records and keep a backup soft-copy.
On the other hand, you can use Expensify. The latter is an app that can photograph your receipts and categorize them. This simplifies the process of itemized tax deduction. You may also use the traditional approach and save your receipts in separate files.
Using a ready-made receipt organizer or a receipt scanner can also be of good assistance. Make sure that when you organize receipts, you sort them by year and category.
How Long Should You Keep The Receipts For?
According to Josh Zimmelman, owner of Westwood Tax & Consulting LLC, the IRS has three years to demand tax records. Therefore, payers must save documents for at least this amount of time. If you were unable to report 25% or more of your gross income, note that the IRS is free to demand any record for up to six years following the original tax payment.
Hart-Anderson, enrolled agent in West Columbia, has alternate advice. He recommends saving tax-related receipts for at least ten years. In fact, he’ll tell you to save them for a lifetime if space allows it.
Conclusion
Saving receipts is the surest way to maximize refund and minimize the tax burden. You may also want to hire a tax expert service. Their guidance can easily save you from the burdensome but avoidable aspects of tax record maintenance.
