What Happens If the IRS Audits Me?
Keep Accurate Tax Records For Tax Audit Protection
The Tax Answers Advisor Transcript From Our Podcast
When tax time comes around, are you being reactive or proactive? Do you find yourself swimming in a sea of questions? Like is it better to do my tax return cheaply? How do I know if I’m doing them the right way? Welcome to The Tax Answers Advisor with Marcelino Dodge. Today will answer these questions and many more, sharpen your pencils and take some notes. Now here is your host, Marcelino Dodge, owner of Cash Tracks Financial.
Marcelino: Welcome to The Tax Answers Advisor. I am Marcelino Dodge, certainly appreciate you listening to the program today. Here’s an interesting quote from Herman Wouk. “Income Tax Returns are the most imaginative fiction being written today.” Well, I know that quote is certainly true when you consider IRS cases for fraud on the website@irs.gov where there is a list of tax preparers who really did create some imaginative fiction on tax returns as they prepare.
Now, of course, this office, and in my practice, we avoid all such fiction, as we indeed look out for the taxpayer and which is why we’re discussing a subject here in just a little bit, the importance of keeping accurate, up-to-date tax records. For your knowledge, this week, a couple updates, the IRS is looking out for you by helping to prevent tax fraud, and ID theft. First of all, there was criminal investigations portion of the IRS, which is basically the section that carries a badge and a gun.
So, if one of those IRS people show up at your office, you really know you’re in trouble. But they’ve identified $2.3 billion in tax fraud schemes this year. It is amazing that these type of schemes are still out there each year. By the way, the IRS identifies what it calls the “dirty dozen of tax schemes.” And these are usually there’s more than 12. But, there’s usually 12 that the IRS really highlights each year.
And on a future show, perhaps we’ll talk about this dirty dozen just to give you a warning of what to be aware of what to definitely avoid. Also to protect taxpayers IDs beginning on December 13th, the IRS will be masking sensitive data on Business Tax Transcripts. That’s tax returns for Corporations, Multi personnel LLCs, Partnerships, S Corporations, so that only to protect taxpayer data, only the last four digits of either the employer Identification Number, or, and and/or the social security number of any taxpayers that are on the tax return will be on those transcripts for the businesses.
So we can give an applaud to the IRS for increasing security there. And then just a note of warning here that we’re providing to everyone is keep in mind that if you get one of these calls demanding payment from the IRS, and if they say oh, go down and get us a gift card of some sort. Well, no, the IRS does not accept any payments on gift cards. And of course, keep in mind, the IRS will not call you and demand payment on the spot. So just a few tips here and updates just for you to keep in mind as we move forward and get ready for another tax season coming up here beginning in January. Still waiting for a few more announcements there is now that the election has passed, we’ll kind of maybe start getting a feeling of when they’ll actually start electronically receiving tax returns, so we can start transmitting them as tax preparers. A little bit here about what we do a little bit more in offering intelligence solutions to our client is that clients, which is part of the tax return records that we’re talking about, we help you throughout the year to keep these records when you enroll with our programs here.
And through these solutions, we see that boy when it comes to individuals and their financial matters. There are infinite solutions. You can pick up an app or look up an app on your phone. You can go searching on the internet, you can find all these different solutions. And the difficult part about that is the main challenge for you is the fact that which of these solutions have these countless solutions, which many developers have developed over the years on the internet and apps for smartphones and tablets.
But well one’s right for you? Because it’s a sea, it’s a huge sea. It’s like the Pacific Ocean, for example, of all these potential solutions are out there. But what’s the best one for you? Well, that’s where we come in to help you to understand your goals. And as we help you to see your goals, we help you to prioritize those goals, help you to prioritize. And once those are prioritized, then we take come in and take a look at what are the indicators?
What are these going to be the keys to your success? In reaching your financial goals, and reaching where you truly want to be. And through this, we gather, analyze all kinds of key financial data. In this case, this is both for business and also personal finances there. And while we’re doing this, we’re helping you to create records, helping you to be good and record keeping for your tax purposes and your tax return.
So as we go through the data, we analyze the data, we look at it closely, we come in, take a look at it. And then we get, this is the goal of where you as the client want to be. This is how this goal, reaching this goal will help me and affect me. Or if I don’t reach this goal, how it’s going to hurt me? So we want to make sure we get all of those down. Then we hit the prioritize, we hit whatever that number first item is, that’s a top priority, the item that has to be addressed first.
So we get that done, then we move on to the next item. And many of these items can include things from retirement plans, it can be helping you understand your insurance better. Which is really makes me unique in the tax industries because I’ve been insurance licensed for 20 years and understand both property and casualty like home insurance, and most business types insurance, as well as regular life insurance and even health insurance and so on. So I got really good knowledge there to help you out as creating an action plan helping you to get to those items.
You address a top priority items. Now it’s not just something then that’s done one time at an initial meeting with you all know it is actually something that is addressed a year-round. Now, this whole plan in making this action plan that’s a part of the whole area. Now, the actual tax return that we prepare for you is included as a part of the solutions. Helping you to get these peace solutions, helping you to be successful.
So, all of your compliance needs are met whether you’re an individual looking for that assistance to be successful, have more cash flow, reach certain goals, build a nest egg, or if you’re a business. We include your compliance needs in this and in businesses that includes even preparation of your payroll, if you choose to have that as a part of it. We can do that, we can do the whole accounting wok and really work closely with you.
And then on the business once again you have employees, your compliance needs for payroll would all be met. That’s all of your quarterly returns that are necessary for payroll, your forms 941s and then, even your business tax returns at the end of year all included in one nicely neat wrapped package. And a nice part about such working for Intelligent Solutions not just doing a tax return. But reaching in helping you really get good records, build solid records.
Is that we have opening for this and we have availability to you, to be able to have to contact me as your Intelligent Solutions Advisor whether it be basically, whether it be, when you need it. And this of course we would do through, we can do it telephone, we can do it through online chat, do it through Zoom meeting which is what we’re doing a lot of right now just because of the current situation which makes it able to work with anyone.
Across the United States and even for that matter, an American citizen that needs to have a tax filing obligation, whether they live in one of the areas that we discussed mission out to where we’ve had listeners from like India, Japan, Korea. We can set up a time and work with you talk to you through the internet and help you through these tax issues. Now our website cashtracksfinancial.com has the information about all these services. We have a personal bundle, we have business bundle, and over real open on our fees.
The personal bundle starts at $49 and it’s personalized to whatever your individual needs, are in for businesses it starts at $149 per month. Yes, these are monthly fees but yet, you get this whole value package to really help you to be successful in these intelligent solutions. So, just think about that and we want to encourage you to give us a call, we can have a free exploration meeting, which is no obligation. We just sit down, we talk, we sit around, we sit down and talk, we talk on the phone, we talk through a Zoom online meeting and then we just go in and figure out. Is this going to work for you?
Are we going to work good together, which I try to take pride in the fact that I like to try to work with most people. And I tried to get along with ones, so let’s just think about that there’s something to think about that as we go into our topic today about “Keeping Tax Records”. So in our whole program, our Intelligence Solutions Management Program helps you to build these tax records through the year as we look over and see where you are.
You get good personal knowledge of where you are through the year, so that you and not just your financial matters and your tax matters but helps you to have more time. Helps you to be able to know, this is what I’m going to expect on my tax return which keeping those tax records is depending on circumstances, those could be everything from your pay stubs, holding on to those, or making sure if you do have. If you work for certain employers, large employers name and some smaller employers like through my office.
We use a payroll system that gives you access to your payroll stubs through an employee portal. And that’s very handy to do to be able to have access to those at any time, and certainly that’s a part of the services that we provide. As well as through being able to keep tax records or you can scan them, you can take pictures of them and store them. And we’re going to talk a little bit more about this as we go on through this because it’s important to keep these various records, not only for your personal knowledge, yet also for when you get ready to do the tax return, even for what you’re going to do on the tax return.
As you and as tax return is done, it provides support for that number that is put on your tax return, whether it’s your personal tax return, or even a business tax return. Like a Corporation, or Partnership, or LLC, and so we’re going to get more a little bit more into this importance of keeping records. When we return for a couple of minutes here. This is Marcelino Dodge, The Tax Answers Advisor on the Voice America Business Channel.
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Today’s tax and financial environment is constantly changing. Tax laws change rapidly, the traditional reactive approach to tax preparation and taxes, no longer works. To deliver the best possible outcomes in today’s world, you need a year-round approach to take advantage of tax law changes, and to pay as little tax as possible. Marcelino Dodge of Cash Tracks Financial helps his clients to implement proactive tax strategies throughout the year. To limit his client’s tax liability. Plus, with this year round approach clients can increase their cash flow and be as prepared for the future as they can be. Email Marcelino at success@cashtracksfinancial.com or call 844-394-4287.
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Voice America Business Network. The bottom line in business.
This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.
Marcelino: Welcome back to The Tax Answers Advisor, this is Marcelino Dodge. I really do appreciate you listening to this program as we’re helping you to see the importance of keeping tax records and exactly what kind of tax records you need to keep as we were discussing in the previous segment, and started is that, it’s important to have records not only for your personal knowledge and for your personal benefit. Also for the positions you’re taking on a tax return.
It can just be very simply on your individual return for example, if you have rental properties. It’s vital you keep good records about those rental properties. If you’re doing a sole proprietorship type business boy it’s really important to keep those records. And the same thing if you’re farming, then the same type of situation applies and recommendation applies even for business, talking business return, LLC, multi-personnel LLC, or Corporation, or Partnership vital to have those records.
Now, another portion with this is keep in mind that your tax preparer, whoever does your tax return because it’s true in this office, is that it’s important to have those records for the tax preparer themselves. Because as a tax preparer, I like to see, okay, you said you spent so much on this piece of equipment. For example, a mechanic shop may buy a $20,000 lift for their shop, which is a legitimate expense. I’ve seen that type of expense through the years.
But yet, I still want to see the ticket. I just don’t want to have you say, why would I bought a $20,000 lift. Well, bring me the receipt, so I can accurately record that and know that yes, in the event of an audit. We know you have that. And the same is true as far as just a bunch of little things like a lot of office supplies that you may have for your office, it’s good to keep all those little receipts. But not just grab them, or throw them all in a Ziploc bag, or like a shoe box, but it’s really important to keep those separated by category. Which we help people to do that because we have worksheets that we provide to our clients to help them to know.
This is category like for fuel, this is for insurance, this is interest. This is repairs, this is written so on, so that you keep can keep those records, and be able to really access them when you need them. Now, we recognize and even in today’s circumstances even over the last few years, due to budget cuts the IRS hasn’t been doing as many in-person audits. They’ve been doing more what’s known as correspondence audits, which basically they’re sending you out a letter saying there’s a problem on this part of your tax return.
And we believe that this is an incorrect position or an incorrect claim that you’re making on the tax return. Please provide us with the documentation that says, you are eligible to claim this deduction and basically, prove it to us is what they’re saying. And so, that’s the other reason why you need those important tax records to do that, so you can get through the odd and not have an issue with IRS audit and be able to keep a deduction to which you are lawfully entitled.
Well, and you may have been lawfully entitled to the deduction in any way we need. When you took it but without the proper documentation to support that you couldn’t end up losing that deduction and so it’s best to keep the records to really have that importance of doing them. Well, as we look on and see about that various tax records that you need to keep. One of the biggest issues that exists when it comes to tax records, is charitable donations.
It is nice this year with the recent changes that everybody who claims or who donate three up to $300 a year can take what’s known as an above the line deduction of $300 on their individual tax return. It’s not that big, but you know, we’d like to get every little bit that we can, so if you haven’t donated $300 yet to some type of charity and if you can, do it. So you at least get that deduction above the line.
The important deal with charitable deductions though, it’s absolutely vital and I always tell individual clients this. Is that it is even corporations to is that it is absolutely vital that you do not donate cash. And if for some reason you do donate cash, get a receipt of some sort that you gave the cash. Because you cannot deduct that charitable donation under current law without some type of receipt. Now type of receipt for a charitable donation is like a check.
So that will work, because you can, it can be cancelled both the front and back. And acceptable receipt can also be a credit card receipt, so or like an electronic transfer from your bank account to the qualified charitable organization. So that’s the best way to get a receipt is to use one of those forms, do a check electronic transfer from your bank account or user credit card. I always recommend doing one of those areas if you’re looking at wanting to deduct charitable donations on your tax return.
Now, the thing about that with charitable donations too, is the fact with the increased standard deduction. Some people may not be able to take charitable donations on their federal tax return. But depending on what state you are in that you’re working on your income tax in, you still may qualify for some type of deduction from your state. For example, in the state of Colorado. For example, in the state of Colorado, if you donate more than $500 to a qualified charity, and you did not itemize, which the number of those who itemize their deductions has decreased, you can deduct from your Colorado income.
The amount of the donations above that $500. So, if you donated $2,000 to the charitable organization, you can then go ahead and deduct 1500 from your Colorado income tax return, which will lower your demand income tax due to the state of Colorado. And that may be true in other states as well. I’d have to look for each individual state that does income tax and see if they have it. But your state may, and certainly we would want to take advantage of that deduction. If your state does have that type of deduction.
Also at the federal level, it is absolutely vital. People have lost on this countless times when it comes to charitable donations in their tax records. Is that if you make a donation on any day, a single day $250 or more, you absolutely have a Letter of Acknowledgement from the qualified charity, stating that you donated that amount, say $500 saying that you donated $500, on say today November 18th. And then, that also has a state that no goods or services were received as a result of this donation.
Now, the reason that letter is vital, well, it’s vital because you gotta have it for the tax return. Otherwise, the IRS will just disallow it on in an audit or if they really choose to look into it. And many people have lost in tax court. I read several of these instances where uncharitable donations, they did not have that letter, that Acknowledgement Letter from the qualified charity by the tax return new date. Because you have it no later than that because the IRS doesn’t look into this till after April 15th.
Or like this last year probably July 15th, they don’t start looking into these charitable donations, especially if they’re really excessive and really large one takes a lot of donations for it though they may look into it. That’s one of the areas that draws attention with the IRS so that’s why records on charitable donations are absolutely a must, and I stress this because, again, I’ve seen many cases come through tax court, where it’s just been, you didn’t have a Letter of Acknowledgement by April 15th. So you’re not allowed this deduction. It’s really, it’s really that simple. Always get the letter if you make that type of donation from the charity and try to get it if possible on the same day. I mean, some charities may be great. I really can’t say anything about any event. I’m not going to, I just recommend if you if it’s possible, try to get it the same day. Although some charities especially some churches will give a statement out and that’ll suffice to accept.
They usually give those out at the end of each year, so just keep that in mind if you’re taking tax deductions for charitable donations make sure you get that particular letter, and have good records. A cancelled check, credit card receipt or some type of electronic donation from your bank account if, that’s what you’re doing. Now, some other important records of course, are your tax returns.
Make sure you keep those. There’s various thoughts on that, and some can be as much as seven years. And I really look at it that it really depends on what state you’re in, as to what the statute is limitations is for the state. Because the IRS only has a three-year statute of limitations from when the tax return is filed. But each state is a little bit different. And sometimes when the states are comparing the information that was reported to them with what they received from the IRS.
It’s vital that you have those tax records available because usually, at least in my experience, the states are usually about a year behind the IRS. The Department of Revenues for each state. Some may be better, some may be worse and they may be getting better in this electronic age. But, right now it’s always good to keep it at least three for federal purposes. But, even may be as much as seven just to help, just to give you a certain comfort level that’s your tax return itself, your income, of course your forms W-2, 1099s.
And for those who may be part of an S Corp, or a Partnership, or Publicly Traded Partnership, or an Estate. You want to keep a schedule K1 one as well, and other sources of income, of course, bank statements, records if you have a business like Schedule C Business or Sole Proprietorship type business. Your farm business definitely want to keep all those income records, or if you sell a piece of property.
This is where it can you really get sticky on a property, when you sell a property, you want to keep records of course, when you bought the property. How much you paid for the property? Improvements you made on the property as well. And then of course, when you sold the property. That way you can easily be able to have the documentation needed for what’s put on when you sell the property and trying to keep your capital gains down, that way you have a good records of your basis.
Then when you’re looking at businesses, of course, sales slips, receipts, invoices, canceled checks and some proof of payment can always be good and in this electronic age sometimes we don’t always get the paper receipt and that’s okay. We just need to make sure that we somehow keep a good record whether it’s stored in our email. Some of those records we can set a separate like file within our email system that we’re using, and does have a file that says like our receipts for 2020.
Or if we can do, what I said, what I tend to do is, I’ll use, like some type of electronic online storage drive. And when I get that receipt. I’ll take that receipt, and I’ll print it to a PDF file. And I’ll store it within that online file cabinet that I have in a PDF so, boom it’s right there and it’s categorized, whether it’s for advertising, or dues and subscriptions, repairs, and maintenance, whatever office supplies, it’s there, we keep it ready.
So that’s, you got to think about those, how you’re going to keep those or if you’re actually keeping some paper slips there. Have a good filing system that you are using for those. At least separate them by month, is my recommendation and if at all possible, we can send a nice little sheet that we have that can help you to break up into categories. Although sometimes, it’s always interesting when you do taxes, because you’re thinking, what category would this fit in?
Some things are a little gray. So sometimes we set up separate categories for things. So it’s very important, though, to think about that. And to keep in mind that it would be good to do that. We do also encourage ones to keep good records of medical expenses, especially if you have high medical expenses, because even with these higher deductions that we’ve had, as far as the standard deductions. I’ve had some just on medical expenses get above that already.
So just some thoughts there a medical expenses want to make sure we track those not that and that also includes like dental and vision expenses as well, that you pay out of pocket and insurance, medical insurance. So we’re going to go ahead and discuss some of these expenses a little bit even more when we return in a couple of minutes. This is Marcelino Dodge, Tax Answers Advisor on the Voice America Business Channel.
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Today’s tax and financial environment is constantly changing. Tax laws change rapidly. The traditional reactive approach to tax preparation and taxes no longer works. To deliver the best possible outcomes in today’s world.
You need a year-round approach to take advantage of tax law changes and to pay as little tax as possible. Marcelino Dodge of Cash Tracks Financial helps his clients to implement proactive tax strategies throughout the year to limit his client’s tax liability. Plus, with this year-round approach, clients can increase their cash flow and be as prepared for the future as they can be. Email Marcelino at success@cashtracksfinancial.com or call 844-394-4287.
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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today please call in the number is 1-866-472-5790. That’s 1-864-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.
Marcelino: Welcome back to The Tax Answers Advisor. This is Marcelino Dodge, I really do appreciate you listening to the program. We’re going to continue on our discussion about various tax records. Why you need to keep tax records and in various situations that you need to, we’ve been touching on many different types of records, we’ve been talking right before the break about some itemized deduction items like medical expenses.
But on that we of course, we keep in mind the mortgage interest, want to keep those statements that you get from the banks as well. And then another deal is brokerage statements for investments. You want to keep good records of your investments, brokerage statements from mutual fund companies, and usually on those, because you get statements, depending on the company. You can get a monthly, you can get them each time there’s a transaction, you get them quarterly.
Usually, once you go through the year, you get an annual statement that shows all the activity for the year. For tax purposes usually just that annual statement it is good to keep. But, if you want to keep more that’s certainly up to you and because many times are also sent electronically or available to you electronically. I would download those from the website of wherever your brokerage account is with, so that you can have them online in the store to some type of electronic vehicle that you’re using, or of course if you choose to print them and put them into file. You’re certainly encouraged to do that as well if you would like. And then there’s other information such as 1099s for investments that you definitely want to keep. And then other documentation that you would want to keep for, for example of say you bought a stock. You got a certain price on the stock, you want to make sure your records are good, although it’s a little easier now because companies are tracking these basis when they report it to the IRS.
But, I still recommend that you if you go buy a bunch of stock, say for $10,000. Keep that record of that transaction. Through the whole time you own that stock. And also, when you sell the, stock have that. And then of course, for up to at least three years until after you sell at stock, or mutual fund, or whatever the investment is. I definitely recommend you do that. And then of course, one last thing is that if you have or have taken a distribution from some type of IRA or Pension Plan, you get a 1099 R at the end of the year.
You, of course, want to keep those with your tax records as well as not some additional situations where it’s important to keep good specific records. One is Alimony, now, we do recognize that Alimony. Since the Tax Cut and Jobs Act was passed is no longer deductible expense, and is no longer considered income. However, if you have an Alimony Agreement before 2018. You could still look at using it but having that Alimony Agreement, the Divorce Agreement, the Separation Agreement, the Maintenance Agreement, all of that is vitally important because even if you’re trying to take it as a deduction or and/or having to claim it as income.
It’s vital that you have that because there are certain tests that have to be met in order for the one paying out the Alimony to even be able to claim it under the prior 217 and 2017 and earlier, tax laws that we’re out there. So, actually, keep that copy and keep it available. Now, if you use your home for business purposes, like your sole proprietorship, you have a room that you’re using exclusively for business purposes, you need to keep good records of that expenses used for the home, as well as make sure that room is used exclusively for business purposes.
If you do childcare out of your home, and many individuals do provide childcare out of their home. It is vital, and absolutely essential to have good records of the hours you’re open for business, as well as hours spent in preparation and cleanup. So keep that in mind, childcare, there’s a lot more details we could go into, with for childcare providers. So, but there’s a lot there that just kind of let you know, keep track of those hours. Keep track of the number of children that you have, on certain days under this COVID.
I’m not sure how many childcare providers are doing childcare in their home still, but if you are, it’s absolutely good to have these records. Now gambling, if you’re still gambling under these current situations, you still got to keep good records of winnings and losses. Although, with the game cards many casinos have that makes it a lot easier. But still, you need to keep track, it’s good to keep track of that for tax related purposes.
When you’re having childcare, or taking your child to a daycare center, which once again under the COVID. Right now may not be doing much of it, but pre covered backseat the first few months of the year, January, February, March, if you were getting some childcare done, you need to have good records as well there. And this is where we got to give the childcare providers a lot of credit, because oftentimes they provide a good statement to you as a taxpayer to be able to do that.
So that’s good to keep that in mind. Also, if you have a child that is disabled, make sure you have as part of your tax records of Physicians Certification, to be able to take that tax credit. And if you’re taking any Educational Credits that’s like the American Opportunity Credit or the Lifetime Learning Credit for those because you got to have good records on those as well. Those are absolutely essential to have not just the 1098 T which the School’s issue out but good records of what act.
How much tuition was actually paid like a statement from the School, records of books that were purchased and other related expenses and related to going to College and probably, going to run some unique situations this year. Because of the COVID but, that’s going to be interesting. But, you want to have good records once again, to be able to give to your tax preparer, so that they can help to get you the maximum credits for which you can qualify for.
So, let’s definitely keep those points in mind along with your tax records. Now, I’ll also this situation which many times we see that people are using their vehicles for business purposes. Now, it’s a little under the Tax Cut Jobs at unreimbursed employee expenses, a lot of people had used a vehicle expenses because they’re using their vehicle in their as a part of their employment. Since majority of those were eliminated, we’re going to focus on keeping good vehicles record.
If you’re using your vehicle like in your sole proprietorship business, for your farm, or for your rentals, and all of these areas, you can still take deductions for business use of your vehicle. And you get into Corporations, S Corps, Partnerships, LLCs. It’s get a little bit different in those areas when you’re there. But for now, we’re just going to mainly look at if you’re doing a sole proprietorship type business, as far as keeping good vehicle records, and this usually starts with the vehicle that you’re using in the business purposes.
And it’s just really tricky because one of the areas is that, I have individuals that will occasionally bring into me various items like receipts for car insurance, receipts for fuel, receipts for repairs and maintenance on their vehicle. While I use my vehicle for business purposes. So, here’s all the expenses related to that particular vehicle. Well, it would be nice if it was that easy, but there are special rules that apply to the vehicles.
And with that, I always, always stress to my clients, if you’re going to use your vehicle in work, which, based on what we see, you absolutely must keep an accurate mileage log of all of the miles you use in business. That is an absolute must. And the reason I tell them this is that just because, a vehicle mileage log is the best way to prove business usage. I mean, you got to have items like the date, the beginning mileage, the ending mileage, you have to have other items that include who you went to visit.
What was the purpose of the visit? That is the most complete log you can have. And it’s absolutely vital to do this because it’s net auto mileage is another area that if you have a bunch of mileage, like we’re talking tens of 1000s of miles on a tax return that you’re claiming for business purposes. Especially on a sole proprietor type business, that can draw red flag from the IRS and so, it’s vital that you have that. Because it’s another one of those deals that if you do not have the proper records to support that deduction.
The IRS can just take off the deductions completely, and you can end up owing thousands of dollars of self-employment tax. So we certainly encourage excellent records be kept, especially for auto vehicle mileage there. Now, other types of records of course, that we want to keep for proof payment can mention about cash, checks, debit or credit cards, and of course, the amount charge pays name the transaction dates and so on.
Now if you have deductions like some businesses will allow you like to make charitable donations to a charity take just take an extra, a certain amount like $50 a check out of your payroll, and then send that off to a designated charity. Some businesses employers do that, that’s a great thing, but to be able to deduct that you basically, got to have your pay stub that shows the Pay Code, the transaction date that was taken out of your check to go to that qualified charity. So just, that’s another important area to keep in mind.
We want to remind you that also in keeping your tax records. Paper copies are good, but definitely don’t keep them in a shoe box or some type of plastic bag. They definitely must these type of records must be in an organized manner. Because if there, if an audit does come up and you present a bag like that, or a shoe box like that to an IRS auditor, they’re going to tell you. Nope, we’re just gonna disallow everything. And, you owe us X amount of money, because the IRS representative will not go through that. So it’s absolutely vital that you get, well organized and do that, even before your tax return is completed, because we don’t accept such information in a way. We want to help you to be organized, which is why our whole program. Our personal bundle, and our business bundle that’s why those are designed in such a way to help you to be organized, and to have good tax return data. And we’re going to have some concluding thoughts about having good tax records here in just a couple minutes, as we’ll be back. This is Marcelino Dodge on The Tax Answers Advisor of the Voice America Business Channel.
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Today’s tax and financial environment is constantly changing. Tax laws change rapidly. The traditional reactive approach to tax preparation and taxes no longer works. To deliver the best possible outcomes in today’s world. You need a year-round approach to take advantage of tax law changes and to pay as little tax as possible. Marcelino Dodge of Cash Tracks Financial helps his clients to implement proactive tax strategies throughout the year to limit his client’s tax liability. Plus, with this year-round approach, clients can increase their cash flow and be as prepared for the future as they can be. Email Marcelino at success@cashtracksfinancial.com or call 844-394-4287.
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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to success@cashtracksfinancial.com. Now, back to The Tax Answers Advisor.
Marcelino: Welcome back to this final segment today of The Tax Answers Advisor. I am Marcelino Dodge, and I just really, really do appreciate you listening to this program as I am really, really wanting to help one at all, to keep their taxes as low as reasonable as possible. And to be able to take advantage of all, of what is happening in the tax code. We’ve been talking today about the importance of keeping tax records, good tax records, we talked about being organized right before we went to the break. And another way to help us to be organized, as I’ve touched on some already today is to do so electronically.
And not just keep it like on your hard drive on your computer or your other device. But you can also use various online storage systems, matching files, like Dropbox or the OneDrive that some companies offer so that you can keep those records safe, you can keep them secure, you can keep them in a way that will not be compromised should if should a hurricane or tornado or some other natural disaster destroy.
So a good electronic backup would be absolutely essential because what we consider is we want to keep our records secure. And you can use a locking file can, if you want to keep paper records, some still would like to do that. And you’re certainly welcome to do so. And I encourage you to do so, if that’s your preference. But try to keep them as secure as possible, have a locked file cabinet, have a safe, whatever method you choose. Certainly try to do so in a very secure manner.
And, it’s good to where possible to have those records also backed up online to keep paper records keep them online, but also if we want to avoid having some lost or destroyed tax records. Prevention is always the best in losing tax records which basically means always have a backup system may be have your main copy and if you’re going to do paper have them like in some type of fireproof safe. Or you may even want to, if you choose to do them in your in a bank deposit box.
I mean it just really depends what your preference is but, you definitely want to keep them in a fireproof or waterproof storage system. And then of course, if you’re keeping electronic copies, you want to have something and maybe even use more than one system. Like, maybe if you want to have them stored in a Dropbox, and maybe if you have certain other services maybe keep a copy in one system and keep a copy in another system.
That way, you always have multiple copies of those available what really makes this very convenient today, is that like what our office does for all of our clients now, is that when you use us for our services. All of our clients get a portal, a web portal, where they you can go in, you can log in or set up, you give us your email, you’re set up within that web portal. You have access to your tax return and electronic copy of your tax return. That way, you can download it and then save it to another source if you deem it necessary.
And if you would like, you can do that, you can print up a copy, you can set it there. Same thing with your W-2s because we keep a copy of your W-2s, because we need to. For electronic filing purposes, the IRS recommends it and even requires it and we like to just for verification purposes, because still, many times people come and ask us for a copy of their W-2. And now what we do is, have you logged into our portal, we try, we help them to get into their portal so they can get their own copy of their W-2, and their own copy of their tax records.
Now, client also has the option to have a paper copy of their tax return, which we will be happy to provide as well so that you have that extra record always available. And what these records is important to keep in mind. One area here of the statute of limitations, is that the statute for the Internal Revenue Service is basically three years after the tax return is filed. So basically, three years from April 15th of the regular tax year is the statute they have, the IRS has not done anything on your return for three years or questioned a certain deduction, then more than likely, you are free and clear.
Now, there are a few exceptions to this is that if you’ve omitted income, that is 25% or more of what your income was, then they can go actually six years back. So that’s probably a good reason to keep them perhaps for seven years. Now, two points to keep in mind here, which some people fail to realize is that if you file a fraudulent return, there is no statute of limitations. Also, if you do not file a tax return, and this is where people get are sadly, sadly, mistaken. Oh, I’m okay, and I file a tax return.
If you do not file a tax return, there is no statute of limitations. The statute of limitations does not begin until you have filed a tax return. So just keep that in mind for any who have not filed a tax return that you need to file a tax return. That way the statute starts operating in your favor. When you do that, get that done. So these are just some excellent suggestions today to help you to see the importance of having good tax records. We can always work with you to provide even more details.
As we look to have people on either our personal bundle or business bundle. And this is all a part of what we help you as our as a client of ours to do as we take a look at each of your situations and find the solution that is right for you. Based on your goals. We help to establish your goals. Then we look at what’s going to help you to be successful. What’s going to have a large impact on your success and having good records will help your success to be even better.
And then of course any potential threats that come up to you. We will work with you to eliminate those threats by helping to establish an action plan that will help you to be successful so that you can reach whatever your goals are even faster and not be just struggling. As we see many are, because many people are looking for direction, many people are looking for help today. We are here to do that, and in doing so, we hope you have enjoyed this nice discussion about “The Importance of having Good Accurate Tax Records”.
And so, we’re going to go ahead and do is invite you back next week. We talked a little bit about business vehicles this time but, we’re going to get that into more in depth the next week. As we’re going to talk about, “What is a Business Vehicle?” Can I claim my vehicle expenses? Gonna get more into detail on that next week, as again we really appreciate you listening today to The Tax Answers Advisor. I’m Marcelino Dodge on The Voice America Business Channel.
Thank you for listening to The Tax Answers Advisor with host, Marcelino Dodge. We’ll be back again next Wednesday at 6pm Eastern Time and 3pm pacific time on The Voice America Business Channel. We’ll have more to share next week.
