Mixing business with personal

I've worked in the accounting field now for about 11 years and one thing I can certainly tell you is that if you mix up your personal affairs into your business affairs, things get really sticky.

The sheer volume of entries required to process the accounting alone will cost you big time! There are almost always mistakes made when someone else is trying to figure out whether or not an expense was incurred personally or for the business. You may shop at Sam's, for instance, personally and also for your business supplies. What ends up happening is, the accounting clerk is left to audit every receipt and make decisions and ask a bunch of unnecessary questions...when it is possible for you to write yourself payroll (if that is how you are set up) or a draw check, then pay your personal affairs through your personal accounts.

You shouldn't waste money paying your accountant to process checks written to your home cable company. Chances are for smaller accounting firms like this one, we end up spending an unreasonable amount of time completing the financials and that makes you unhappy, your bank or lender unhappy and we never recoup the loss of time put in vs. amount charged.

Keep your personal affairs-personal and your business affairs-busniess.

"Do I really have to keep *all* these receipts?"

This is a common question from people in business. Let's think practically here for a moment. Those receipts can be quite a bother. They seem to accumulate over night and take over your desk before you can sort through them! Right? Well the bigger trouble is, at year's end, they matter. You need to be able to prove your expenses if you're going to claim them on your tax return against the income you've received.

A sound piece of advice would be to find a way of contending with receipts as the year progresses, perhaps a filing system or system of envelopes by category would work. Remember, always date such envelopes with atleast the year on the outside, this will help keep things simple in the future. Maybe it could be just as simple as stapling them to the check stubs or taping it to your calender. A quick note on the receipt saying who/what it was for or to would also be a good idea, this may clear up any questions regarding it's relativity later.

Also, talk to your tax preparation professional to find out which receipts they need to complete your tax forms. As a preparer, they do not need to see every one, you wouldn't want to pay them that much to sit and go through all those receipts. But they will need some for back up in their records. Contributions is a more recent important receipt that will be needed by your tax professional due to changes in the recent tax laws.

Always keep in mind, an IRS agent will automatically delete any expense you can't prove so it is extremely important to keep your receipts and keep them in an orderly fashion for easy retrieval for this purpose. If you are ever audited by the IRS, your receipts are imperative. So be diligent and organized when it comes to receipts and work closely with your tax professional to save expense and time in the long run.

Keep track of your business mileage

It is extremely important to keep track of your business mileage (incurred on your personal vehicle) in the form of a mileage log. Even if that is a 99 cent mini spiral notebook, you should be recording mileage info. for every business associated drive. Yes, even to the post office to buy stamps to mail out your bills! This also includes charitable mileage, medical mileage and moving expenses incurred, but some of these have different rates at which to compute the deductible amount for taxes. In this post, we will be discussing business type miles only.

You are allowed to deduct expenses that are incurred to make the income. You should always be thinking, "How will I prove this expense if I needed to at the end of the year?" Staying organized and keeping track of your miles will make things alot easier on you come tax preparation time. You can just leave that little notebook right in your car for convenience.

If your business records vehicle expenses for gasoline, repairs and such, you would not need to also record mileage. The mileage rates are intended to cover those costs on a per mile basis. It's either actual expenses OR mileage reporting.

Individuals who receive a W-2 from their employer, who use their own vehicles in their line of work also qualify to deduct this expense in certain circumstances*. If your employer does not reimburse you or only partially reimburses you, you may be entitled to claim it on your taxes filing Federal Form 2106. Here are some instructions and a flow chart if you'd like to see if you would qualify to file this form.

The mileage rate for the tax year 2007 was $0.485
The mileage rate for the tax year 2008 from Jan. 1-Jun.30 was $0.505
The mileage rate for the tax year 2008 from Jul. 1-Dec. 31 is $0.585

As you can see, the tax year 2008 has 2 distinct time periods with different rates. It will be important for you to have a mileage log showing the number of miles accumulated for each separate rated time period. Your tax preparer will need this information in the form of a total of miles for each time period. In the event of an audit, your IRS agent will want proof in the form of a mileage log for all year, otherwise they will most likely add back some or all of the deduction from form 2106.

When recording your mileage log, be sure to include the date, beginning mileage, ending mileage, total miles for the trip and a brief notation about the nature of the trip couldn't hurt either. For example:

8/29/08 61,558-61,601=43 P/U Parts

For more information on mileage rates and requirements, see the IRS.gov website.

*See your tax professional for more details.