Maybe, the best strategy to reduce the hassles of the tax season is to avoid the “tax season” entirely. Take the time now to develop a process that helps you keep the pertinent records organized during the year. Then, you must only complete a few minor tasks after the first year before you prepare or your accountant prepares your tax return.
The two major categories of data that are required to prepare an income tax return remain essentially the same: income and expenses. Whether these records are paper or digital or a bit of both, create a system that allows you to save and to record income documents and expense receipts throughout the year, so the totals will be available on January 1.
Whenever a customer pays an invoice, record the amount in an Excel file or other accounting software. In fact, you can create invoices in some software that automatically adds the amounts to a compilation page or chart. Develop the habit to review every expense or purchase at the end of each day to determine if it is a business expense, and record the amount in a cumulative system.
The best time to meet with your accountant to discuss your tax return is towards the end of that year’s return, not after the first year. Schedule an appointment by mid-November at the latest. He or she may have suggestions about how to increase deductions or reduce any tax you may owe; and these actions must be taken before the end of the year.
Another strategy of your yearlong tax preparation system is to pay all potential tax-deductible expenses with a check or credit card, so there is a clear, accurate and independent paper trail. Moving to an online bank and bill-paying process also create independent records and have proven to be better protection against identity theft than traditional banking practices.
If you’re a full-time professional photographer who travels for most of your work, then obtain a separate credit card for all the expenses associated with these projects.
It’s better to give your accountant too much information than not enough. Some of your expenses may not quality as tax deductions, but let your accountant make that determination instead of you. This is particularly true if you operate a part-time or full-time photography business from your home. The IRS has become stricter about what it allows when your business is in your home, but you still want to be sure you qualify for the maximum deductions.
If you drive many miles throughout the year to shooting sights and/or clients’ offices, then it’s a good idea to have a separate mileage booklet to record your daily business mileage. If you’re ever audited, then the IRS is more likely to agree with your mileage deduction if you have such a booklet and it looks as if it was marked on every occasion.
An important part of your tax return recordkeeping is retaining all your documentation, receipts, etc. for at least three years. The best strategy is to keep them for a minimum of six years, since you can be audited anytime during this period. The actual tax forms you submit should never be discarded or destroyed. If all your records are digitized, then make sure to back them up on disc or an online cloud service. If your tax return is completed and submitted as a paper document, then scan each page to create a digital version.
Whatever paper documents, receipts, etc. you have, store them in a separate box for each year, and mark the box carefully.
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