The manner in which income tax information is accumulated and presented to your tax preparer can result in substantial savings, even if you are your own tax preparer. More, substantiated expenses are one factor. Another is to know and properly report all of your income so there are no subsequent penalties for failure to report. Use of various brands of software can make that task much easier, efficient, and productive than manually accumulating the data.
Any tax payer who claims auto expense on their tax return is required to maintain a written record of miles driven for business. Unless the allowed standard mileage rate is used, a record of all auto costs is needed. Failure to maintain and have available the mileage record can result in loss of the auto expense deduction, penalties, and interest.
Although the additional Form 1099 reporting requirements included in President Obama’s Health Care Act have been officially repealed, those requirements existing prior to that legislation are still in effect. If you pay an unincorporated individual $600 or more in a year for services rendered to your business (including for rental properties), you need to report it to the Internal Revenue Service. That includes gardeners, painters, cleaning services, and other handymen.
If you have a business that sells merchandise, it would help to keep a record of the year- end inventory. If you have an investment securities account, your year-end broker’s statements (Form 1099) may include reporting of proceeds from security sales as of certain dates within the respective tax year. In that case, you need to have and provide the cost of each item sold, and the acquisition dates.
Unlike salaried income, business and/or investment income can result in taxable income against which there is no withholdings of taxes from your income. Under such circumstances, it is advisable to pay estimated tax quarterly to prevent interest and penalties on the underpayment. Close attention to that matter can prevent substantial over or underpayment during the year.
For dependants claimed on your tax return, it is necessary to provide their names, Social Security numbers, and birth dates.
For clarification on the above and other tax questions it’s best to ask your Certified Public Accountant.