Landscape Management, October 2013

Its important to note a record needs to be verifiable and must support a transaction includible in income or deductible as an expense as allowed by the tax code and regulations promulgated there under Just showing you paid an item isnt sufficient It must be necessary and reasonable supporting a business purpose to be deductible Here are basic records that substantiate the following items Gross receipts are the income you receive from your business You should maintain supporting documents showing the amounts and sources of your gross receipts Documents for gross receipts include Signed service tickets or invoices Bank deposit slips Credit card charge slips and Forms 1099 MISC received from customers Planning pointer You may choose any recordkeeping your needs as long as it clearly shows your income and expenses Your system should include a summary of your business transactions primarily the ledgers that are part of your accounting system 46 BUSINESS PLANNER 2014 continued from page 44 system that suits Purchases are the items you buy and resell to customers or materials you apply during your service visits Your supporting documents should show the amount paid and the amount was for purchases Documents for purchases include Vendor invoices for material supplies and equipment Cancelled checks and Credit card sales slips Expenses are the costs you incur other than purchases to carry on your business Your supporting documents should show the amount paid and the amount was for a business expense Documents for expenses include Cancelled checks Legal agreements such as leases note payable mortgages etc Account statements Credit card sales slips Vendor invoices and Petty cash slips for small cash payments RETAINING RECORDS The minimum amount of time to retain records for tax purposes depends on the item when its recorded and if it will be part of a future transaction For example you purchase a vehicle and sell it in five years The transaction five years hence would be a future transaction requiring information from the original purchase Generally you LANDSCAPEMANAGEMENT NET OCTOBER 2013 P Î È Run È K must keep your records supporting an item of income or deductions on a tax return until the statute of limitations for that tax return runs out The statute of limitations is the period of time in which you can amend your tax return to claim a credit or refund or the IRS can assess additional tax usually three years after filing Returns filed before the due date are treated as filed on the due date for this purpose In the following situations youll need to produce records past the normal statute of limitations Records for as many as six years after filing if you fail to include income you shouldve reported and its more than 25 percent of the gross income reported on the original return Records for as many as seven years after filing if you file a claim for a loss from worthless securities or bad debt deduction All employment tax records for at least four years after the date the tax becomes due or is paid whichever is later If you file a fraudulent return or you dont file a return your records might be examined indefinitely These are the rules for the supporting documentation However I like to keep copies of the tax returns long after theyre filed They can help when preparing future tax returns and when making computations if you file an amended return Keep records relating to property purchases and improvements until the statute of limitations expires for the year in which you dispose of the property These records must be kept to determine any depreciation or amortization and figure the gain or loss when you sell or dispose of the property Keep accurate and complete records supported by a wellmaintained bookkeeping system This allows you to perform proper planning for growth and profit and foremost comply with any requests for records during an IRS audit should you be called on to prove your tax return is accurate LM Gordon is a CPA in New Jersey who owns an accounting firm that caters to landscape professionals throughout the U S He can be reached at dan@ turfbooks com PHOTO ISTOCK INTERNATIONAL INC ITS YOUR RESPONSIBILITY TO SUPPORT EACH AND EVERY NUMBER ON YOUR TAX RETURN WITH CORROBORATING DOCUMENTATION