Albert Aiello, CPA, MS Taxation, RE Investor
“POOR RECORDKEEPING IS A MAJOR CAUSE OF SMALL BUSINESS FAILURE”… The U.S. Small Business Administration (SBA)
All successful people keep good records so they can control, improve and develop their business. When it comes to taxes, poor recordkeeping also means lost deductions, more taxes, more IRS problems and more costs to you. Let the government pay you for good records! This is one of Kathy Kennebrook’s favorite ways to save money in her business.
For example, you are in a 40% tax bracket. Because of your good business organization you come up with another $2,000 of deductions. In the 40% bracket these deductions equate to $800 in tax savings or a government pays check as a reward for your entrepreneurial organization. If the recordkeeping took you an unlikely 8 hours, you would have been paid a nice $100 an hour from the government. Recordkeeping also keeps you out of trouble with the IRS, as it documents your business expenses.
HERE ARE SOME PROVEN SHORTCUTS WHICH CAN SUBSTANTIALLY REDUCE RECORDKEEPING TIME:
Þ USE THE "DOWN-TIME APPROACH" — This reaps valuable deductions you would otherwise miss. You record out-of-pocket cash expenses during the “down-time”, such as — waiting at a drive-in bank, waiting at a gas station, waiting in a traffic jam, waiting for a client or waiting for whatever. For those of us who live in cold winter climates, a good time to catch up with some valuable recordkeeping is in January when you are stuck at home in a winter storm.
Þ KEEP AN ENVELOPE IN YOUR CAR — Each day as you start your car, let the engine warm up a bit so you can make your entries, including your odometer reading and places you intend to go. Use the envelope to hold the receipts you acquire during the day. Start a new envelope every month. On each envelope, write the month and year.
Þ FOR BUSINESS AUTO TRAVEL, INSTEAD OF 12 MONTHS, USE A 3-MONTH "SAMPLING" — You are allowed to use a 3-month “sample” period to compute your business mileage for the year, provided it is representative of the full tax year. For only 3 months of the year, log in your dairy each of your business trips with mileage. You should select the 3 months where you are the busiest so you can get a high representative business-use of your auto. Once you set it up, it’s easy and a real time-saver! Kathy Kennebrook carries an envelope with her when she travels and places all the receipts from her trip in it, and during “down time” in the airport she records her cash expenses on the outside of the envelope. Kathy Kennebrook has found that this one technique has added thousands in deductions for her through her business.
Þ DON’T YOU DO THE RECORDKEEPING…USE OTHER PEOPLES TIME & TALENT ("OPT&T") — Don’t get bogged down in unproductive detail. It will soak up valuable time that you could be using to earn more income. Instead, leverage your time by employing a personal assistant (who could be your children or spouse*) to take care of recordkeeping and other clerical duties. [*Note: You can also receive additional income tax benefits by employing family members in your business.]
Þ USE CREDIT CARDS — By using credit cards you have the necessary receipts and canceled checks. Use the credit card companies that send annual tax summaries which have your tax-related expenses already totaled and classified for the year.
Þ DO RECORDKEEPING FREQUENTLY! — Preferably daily. At the very least, do it every month instead of waiting until the end of the year when everything piles up, when it then takes 5 times as long!
One thing is for sure, NEVER WAIT UNTIL YOU ARE AUDITED, UNLESS YOU LIKE HORROR STORIES!
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The above are excerpts from The Real Estate Investor’s Goldmine of Brilliant Tax Strategies, A Tax Reduction System And Special Forms Software Package, by Albert Aiello. For all your real estate investing tools visit Kathy Kennebrook’s website at www.marketingmagiclady.com