Tax Tips
Tips for Tax Record-Keeping - July 2001
Richard Scrivanich - Partner
Some tips for tax record-keeping
Effective record-keeping helps to ensure you are getting all the deductions you are entitled to on your income taxes. Here are some suggestions for better management of your records.
Segregate business records
One basic principle of effective record-keeping is that business and personal expenses should be kept separate. Here are some ways to keep them apart:
- Self-employed persons should, if possible, have a separate checking account for a business. It may also be a good idea to obtain a separate credit card for business use only.
- When a car, computer, or other equipment is used for both business and personal purposes, keep an accurate journal or other record of date and place of use, and miles driven (or period of time used) for business and nonbusiness purposes. Certain deduction limitations and adjustments of prior deductions kick into effect if business use falls below 50%, so it pays to have records showing the amount of business use.
- Business travel, whether local or away from home, and entertainment should be carefully accounted for. Having a separate credit card for business use may help simplify keeping track of such costs. Travel expense records must how the amount, time and place, and the business purpose of the expense. Business entertainment expense records must show the time and place, persons entertained, their business connection, and the nature of the business discussed. Any personal expenses incurred in travel away from home should be separated.
Money spent on the home
Taxpayers frequently overlook keeping records of additions or improvements to their homes. The cost of such additions or improvements can be added to the tax basis of the home, and therefore, reduces the amount of taxable gain when the home is sold.
However, the tax law, with its capital gain exemption of $250,000 for singles and $500,000 for married couples, did away with the necessity of keeping these records for many people. Most persons won't realize so much capital gain on their homes such that it would exceed the exemption amount.
Still, for those persons who have lived in a home for a long time, and now want to down-size to a smaller home, or for those who live in areas where the real estate prices have risen dramatically, the exemption amount may be exceeded, so you might want to keep track of all improvements to reduce the amount of gain taxed.
The easiest way to keep track and make sure no such costs are overlooked is simply to place all receipts relating to improvements in a designated file or box. Then when the house is sold, the receipts can be totaled.
Assets
Records relating to the purchase of stocks or other important assets should be kept separate from other receipts. You will need to keep records of such assets on hand long than other, general expense records. For securities, the following information should be maintained:
- dates of purchase,
- cost of each separate lot,
- any transfer taxes paid,
- stock dividends and splits
- reinvested dividends, and
- date and amount received on sale.
If you have any questions concerning tax record-keeping, or any other tax, accounting, or business matter, please give me a call at (562) 698-9891.
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