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FAQs

What kind of records do I need to keep in my business?

Complete and accurate financial record keeping is crucial to your business success. Good records provide the financial data that helps you operate more efficiently. Accurate and complete records enable you to identify all your business assets, liabilities, income, and expenses. That information helps you pinpoint both the strong and weak phases of your business operations.

Moreover, good records are essential for the preparation of current financial statements, such as the income statement (profit and loss) and cash-flow projection. These statements, in turn, are critical for maintaining good relations with your banker. Finally, good records help you avoid underpaying or overpaying your taxes. In addition, good records are essential during an Internal Revenue Service audit, if you hope to answer questions accurately and to the satisfaction of the IRS.

To assure your success, your financial records should show how much income you are generating now and project how much income you can expect to generate in the future. They should inform you of the amount of cash tied up in accounts receivable. Records also need to indicate what you owe for merchandise, rent, utilities, and equipment, as well as such expenses as payroll, payroll taxes, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees. Records will tell you how much cash is on hand and how much is tied up in inventory. They should reveal which of your product lines, departments, or services are making a profit, as well as your gross and net profit.

How long should I keep my records?

You should keep your records for at least six years. The IRS statue of limitations is generally three years from the date you file your return (or the date it’s due, if that’s later), or two years from the date you actually pay the tax that’s due, if the date you pay the tax is later than the due date, but there are times that they may go back six. After that you shred your old documentation.

Should I keep my old tax returns? If so, for how long?

Yes, keep your old tax returns.

One of the benefits of keeping your tax returns from year to year is that you can look at last year’s return while preparing this year’s. It’s a handy reference and reminds you of deductions you may have forgotten.

Another reason to keep your old tax returns is that there may be information in an old return that you need later.

Audits and your old tax returns

Here’s a reason to keep your old returns that may surprise you. If the IRS calls you in for an audit, the examiner will more than likely ask you to bring your tax returns for the last few years. You’d think the IRS would have them handy, but that’s not the way it works. More than likely, your old returns are stored in a computer, in a storage area, or on microfilm somewhere. Usually, your IRS auditor has just a report detailing the reason the computer picked your return for the audit. So having your old returns allows you to easily comply with your auditor’s request.

How long should I keep my old tax returns?

You should keep your old returns forever, especially if they contain information such as the tax basis of your house.

When should I hire a lawyer?

For certain legally complex or time-consuming disputes or problems, there is no doubt that a lawyer is necessary. For example, if you want a will prepared, or a more complex business deal handled, you will need to hire a lawyer. And, if a court case is involved (other than a simple, routine matter), you’ll almost always need a lawyer.

When deciding whether to hire an attorney, consider the following:

  • Does the matter involve a complex legal issue or is it likely to go to court? Is a large amount of money, property, or time involved? These factors indicate that you need to hire a lawyer.
  • Is there a form or self-help book available that you can use instead of hiring a lawyer? You may be able to solve certain problems with only minimal assistance.
  • Are there any non-lawyer legal resources available to assist you?

What can I deduct as travel expenses?

The following travel expenses cannot be deducted:

  • Costs of commuting between your residence and a work site, but it’s a deductible business trip if your residence is your business headquarters.
  • Travel as education
  • Job hunting in a new field or looking for a new business site

What can I deduct for business entertainment?

There are various conditions and limits for deductions for business and entertainment.

  • Generally, there should be a business discussion before, during, and after the entertainment.
  • Generally, deduction for entertainment and meals is limited to 50 percent of the cost.
  • There are further limitations for club dues, entertainment facilities and skyboxes.
  • Spouses of business associates, and your own spouse, can be included in the entertainment in settings where spouse attendance is customary.

What kinds of business organizations will limit my liability to business creditors?

Corporations, limited liability companies (LLCs), limited partnerships, and limited liability partnerships (LLPs) are the three most common business entities that limit liability. General partnerships and sole proprietorships don’t limit owners’ liability. Limited partnerships limit the liability of some partners (limited partners) and not others (general partners).

Which type of business entity is best for tax purposes?

It depends. Generally speaking, the “pass-through” type of entity saves tax overall by eliminating tax at the entity level. Pass-through entity owners are taxed directly on their share of entity profits. Another pass-through advantage is that owners can take tax deductions for startup or operating losses, against their income from investments or other businesses.

Should I choose an LLC or an S-Corporation?

While the S-corporation’s special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners.

An LLC may offer several classes of membership interests while an S-corporation may only have one class of stock.

Any number of individuals or entities may own interests in an LLC. However, ownership interest in an S-corporation is limited to no more than 100 shareholders. Also, S-corporations cannot be owned by C-corporations, other S-corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction.

When is my return due?

Your return is due based on the information below.

Tax Form Number Initial Due Date Extended Due Date
990 – Not For Profit May 15th November 15th
(6 Month Extension)
1040 – Individual April 15th October 15th
(6 Month Extension)
1041 – Estates & Trusts April 15th September 30th
(5 ½ Month Extension)
1065 – Partnership March 15th September 15th
(6 Month Extension)
1096 & 1099’s – Non Employee Compensation January 31st
1120 – C Corp
Other than 6/30 Tax Year End or 12/31 Tax Year End
April 15th October 15th
(6 Month Extension)
1120 – C Corp
6/30 Tax Year End
March 15th October 15th
(7 Month Extension)
1120 – C Corp
12/31 Tax Year End
April 15th September 15th
(5 Month Extension)
1120 – S Corp March 15th September 15th
(6 Month Extension)
W-3 & W-2’s – Employee Compensation January 31st

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