Closing the Year - Be Ready to File Your 2009 Taxes

Getting Your Records Together

The key to being compliant and correctly taking all of the deductions that you are entitled to is to have your information organized and available for consideration for input onto your tax return.  Following are some recommendations for getting your 2009 records pulled together.

For Businesses:

The first step in closing your year is to reconcile your records to the monthly statements (i.e. bank accounts, credit cards, loans and lines of credit).  Reconciling eliminates duplication and picks up all those miscellaneous entries that you might miss, such as debit card purchases, finance charges, merchant card fees, etc.

Next, review your profit and loss statement.  Look for reasonableness and accuracy.   Compare your gross margin to prior years - are you in the 40 - 60% range?   And focus in on any negative figures.   These are things that your accountant will notice, so you definately want to sort out any questions now.

Lastly, review your balance sheet.   Specifically, can you support the numbers on it.  You will likely learn a lot about your office procedures here and pick up some additional write-offs.

1. checking accounts, credit cards, & loans - look to see that the ending balances match the amounts on your statements 
2. fixed assets - does the detail include all of your equipment, software, furniture, fixtures, and property improvements
3. receivables and payables - if these are not to be paid, then adjust or write-off
4. payroll and sales tax liabilities - do you really owe these?
5. due to/from shareholders - is everything listed?

For Individuals:

Records that you will need to collect include your 2008 tax return, W2, interest income, mortgage summary, medical expenses, health insurance premiums, school tuition/loan payments, stimulus payment stub, investment statements, rental property records, home office expenses and sole proprietor/LLC business records.

Note that all charitable deductions now require a written receipt as support.

And for all those miscellaneous debit card/credit card receipts, bank statements, utility bills, donation letters, etc., sort them by category, write notes on them (if need be), and put them into envelopes or a file.  You will want this as back-up. 

The amount of time that you need to keep records ranges from three years to indefinite, depending on your history with the IRS. 

2010 Tax Calendar

• Jan 1 – 31 = time period to mail out/receive W2's and 1099's
• Feb 1 – April 15 = time period to prepare and file 2009 tax returns

Focus on Professional Standards

In 2008, the IRS created new standards for paid preparers of tax returns.  The purpose of the legislation (Small Business and Work Opportunity Tax Act) is to ensure that tax returns are accurate and complete.  Two important aspects of this Act that you should be aware of are:

1. tax preparers now face stiff financial penalties for knowingly understating your tax liability
2. the minimum standard for what is considered reasonable was increased from “a realistic possibility” to “more likely than not” that your tax treatment was correct

Tax preparers can take in good faith what you tell them, without verification.  However, they cannot ignore inconsistencies nor accept incomplete or unreasonable information.