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Preparation Is The Key

November brings a chance to prepare for the 2011 filing season and also for me to take advantage of continuing education.  I recently attended two different seminars , one with the State of Oregon and the other was a Federal Tax Update.  In summary, the things I learned from these seminars was how important it is to teach how to gather and store documentation and how taxpayers must be able to substantiate their deductions.

At the State of Oregon Liaison meeting, I heard from state auditors about how they interact with those selected for audit.  The number one problem seems to be timely response to their audit request.  To fix this problem, the State of Oregon is putting a 10 day deadline to call and make a connection with the auditor.  This short time frame may frustrate tax payers, but the truth is that a quick phone call to the auditor from the taxpayer or the CPA will satisfy the 10 day time frame.  This lets the state know that you have received the request and you can then set up a time to get the requested information gathered.

What will you likely need to provide to the auditor?  If you are a small business owner you will need to provide bank statements including credit card statements, general ledger, cancelled checks, receipts.  They may even request a copy of your Quickbooks file, though you can print out reports to satisfy their requests.

My experience has taught that an organized response makes the auditor happy and will result in a better outcome.  But to be organized, the taxpayer must be prepared.  This means that you have copies of charitable donation receipts, mileage logs, proof of home office use, etc.  Usually you must have these documents created contemporaneously, meaning that at the same time that the expense occurred.  Write down who you took to lunch on that receipt, detail out your business mileage on a phone app, keep copies of your phone statements, jot down the purpose of the business trip.  Our memories fail us and if we have to go back and recreate these documents it will be much harder.

Sometimes during the year you have a question about whether an expense is tax deductible or whether a tax credit will benefit you.  Contact your CPA during the year to make sure.  Don’t wait until tax filing day to ask if you did it right back in July of 2011.

Tax filing season is quickly approaching.  Enjoy the holiday season and take time to get organized and ready to make tax filing easy and painless!