It was something I did not expect to see in the mail…..a letter from the IRS telling me that I have to call to schedule an appointment to review my tax forms, receipts and mileage for an audit! I do not care who you are or how well organized you are…..you will cry, you will be mad and you will be stressed by it. I was all that in one day!!!
I do have a person who prepared my taxes for me! Prepared may not be the word, he puts all the numbers in and creates the forms for the IRS for me to file my tax refund. But I do all my books!
Thinking about the books, this is what I know: Who should do my books? ME!!! I am a small business owner, I should know more about where my money is and where it was spent. I should be able to look at a receipt and know exactly why I bought want I bought and if it was a supply deduction or an office supply expense (these are two different things!!) I should also know where all my records are at and easy to access.
Which brings me to the who should I file all my receipts and other papers? Currently, I have a filing cabinet full of files for years of business. Each bride has their own folder because of all the information that I have to keep for them. Then each month of the year for receipts of the year. I also have other for donations, bank statements and such. But thinking about the month folders I have for all the receipts. Now, how one keeps these are all to their personal liking! But after being audits and asked to show my supply receipts, well okay! I fingered through a few files and the Auditor was shocked with all that I had filed for month to month folders……in the future, I will have year files for supplies, equipment, postage and such! This way I can grab the one folder and be better prepared! But another thing I had was the Simplified Weekly Bookkeeping Record. This allows me to log each weeks activity of the business…..do you need to use this? NO!! It really is your personal preference or your tax person (my tax guy loves these books!) But I also had spread sheets for the years being questioned. A:)Auditor was amazed the amount of time I put into organizing, spread sheeting and logging the years work records. B:) having the spread sheets backed up all that I had in the Bookkeeping Record. C:) Having both, kept from having to show all the little receipt papers and we just used the Bookkeeping to show how much I spent and were for supplies! WHEW!!!
But then we had to review Contracted work! I log anyone I used to help with editing, shooting or hire to search my computer for lost weddings! Now something I was not aware of is that if you pay someone more than $600 a year, regardless if they have a business, a student or your dad! If you pay out more than $600 in a calendar year, you have to HAVE TO fill out a 1099 schedule. WHY? Because under Federal Law, any income more than $600 has to be recorded as income! If you have a copy of the 1099, you will have their social security number. This helps to track if those businesses or individuals claimed the earnings on their taxes. This does not mean you have to pay taxes for employees, but just to assure that they are paying theirs! I was under the assumption that this number was at $1,000, so I was careful to not pay anyone more than that so that I would not have to do this to anyone! However, those they reviewed will be dismissed and not asked at this time to show this! Auditor thinks that this was a simple, I did not know and they will not question more, but that this next years files will be watched for that….I did not contract much this past year, so I will not stress!
This audit did take 2 hours! I could not imagine how long this would of taken if I was not organized with all my papers….though my desk never looks organized, tax papers are! The auditor was reviewing my mileage records and was amazed that I keep all the locations and mileage so well. Asking if I write in the books each time, she laughed at how I really do it all. It works and you are welcome to use it too! I buy lots LOTS of post it notes! This are great! I keep a pad in each car. If I am going, let say, to get ink from Office Max. I pull out the post it pad and write down the date, location and the last 3 digits of the odometer. Then when I get back home, write the last 3 digits again. Now because this post it note pad stays in that car, I still write the vehicle on the page as well. When the pad is full, I take it in the house and drop it in the bucket near my desk! I do not use shoe boxes or other boxes. I use a bucket with a lid! Then once a year, I go through and file, spread sheet and log! It seems like a lot to do at once but think about how much time it would take to do it monthly!
Back to mileage – if you ever need to rent a car because yours is damaged – KEEP ALL PAPERS AND RECORDS OF THIS! As well did you know that based on the percentage of how much you use your vehicle for business reasons, you can claim a percentage of your car insurance and repairs?? New to me! As well if you are audited and they want to see mileage…..keep all your receipts for oil changes and other car repairs. The car care locations have to record you mileage, those will back up your logs with proper numbers!
The last thing is this! I asked about using a receipt scanner because of all the paper, files and such for business. You can scan or store your papers as you please, but you will have to be able to access and PRINT the documents if you get audited. They will not print or review digital files yet! So ponder if you want to do all that printing if you do get audited! The other thing that I learned is that if you are audited, they do not look at everything! They will send you a letter that tell you: review will require paper and receipts for supplies and mileage.
I hope that my experience has helped you! I feel much better about it and know that if it happens again (which once you are audited for any particular years, they will not audit those years again!) I will be ready again and sure to pass with flying colors again……..
As for the error on my report, it was not one by me but one who enters the numbers in for the refund papers! They said the money was small and not worth coming after me to pay! My auditor will pass this audit on to another review with a request for no changes! Just remember that if you have someone prepare, check your numbers with the ones you have in your books!
The Holidays are quickly coming upon us! Now is the time to start thinking about that hard to buy for person in your life!
Lesley Knox 