Searle Business Solutions

I vividly recall my reaction after hearing House Speaker Paul Ryan say that, under the new tax law, most taxpayers would file their income tax returns using a post card. I laughed long and hard. Now that the new forms and guidance are coming out, the situation is not quite so funny.

A draft of the much-awaiting ‘simplified’ Form 1040 for the 2019 tax filing season is in the “comment period” before being published. Taxpayers and tax professionals alike have been wondering how the IRS defines “post card” and now we know.  The 1040 Post Card looks nothing like the little “Having a great time! Wish you were here!” we used to send back home from a vacation. The new Form 1040 is two-sided, and each side only covers about half of a letter-sized page.

Not exactly a post card.

Here are a few more items to look forward to when you see your 2018 federal tax forms next filing season:

• No more Form 1040A or Form 1040EZ. The new Form 1040 replaces them both.

• The IRS is using a ‘building block’ approach to preparing an income tax return. In other words, a series of schedules – both new and familiar – are used to determine the total income and deductions reported on Form 1040.

• The new Form 1040 is shrinking from 79 lines down to either 23 or 24 lines. The final version has not been drafted yet.

• Six new schedules, numbered 1 thru 6, have been developed to report income and deductions that are not addressed by the lines on Form 1040.

• No changes are planned to the old, familiar Schedules A thru F, except for those required by the Tax Cuts and Jobs Act (TCJA).

• Separate forms will still be required to report additional taxes and to claim refundable and nonrefundable tax credits.

Even though the new ‘simplified’ Form 1040 for the 2019 tax filing season is still a work in progress, we can easily see that it’s longer and more complicated than a post card. All the more reason to do your homework next season, or to get assistance from a qualified tax professional.

You prepare and file your income tax return every year. Usually, nothing happens after that, other than getting your refund or having your check cashed. The IRS doesn’t write back to you telling you “We’re good, we got it.” Did you ever wonder if you are good with the IRS, that their records show the same information as your records do?

Well, wonder no more! The IRS has an online tool that lets individual taxpayers securely access their federal tax information. It’s at IRS.gov/account. No need to call and wait on hold. This online tool provides the same information as what’s provided by IRS representatives when you call. Plus, written online information is even better than verbal information you get on the phone. You always have it to refer back to.

Sure, you have to spend a little time to create an account and password. But it’s worth it! Once you’re all set up, you can view:

1. Your same-day pay-off amount, including accrued interest
2. Any tax balances you owe by year
3. Your payment history going back up to 18 months
4. Key information from your most recent tax return

To get set-up, a first-time user has to authenticate her or his identity through the Secure Access process (you can learn about secure access at IRS.gov/secureaccess) and create a user name and password to use for every login to the system. Then, you’re in! Monitor your personal tax account by keeping track of payments and taxes owed.

And the best part? You can access the system whenever you want to, with no waiting on hold. Well, almost any time you want. The IRS.gov/account tool is available Monday 5:00 a.m. to Saturday 9:00 p.m. and Sundays from 10:00 a.m. to midnight. All times are Eastern. Your account balance updates once every 24 hours, usually overnight.

Of course, if you owe a balance, the IRS makes it easy to pay from your bank account or with a debit or credit card at IRS.gov/payments. Need more time to pay? You can also apply for a payment plan, including an installment agreement. After making a payment, allow up to three weeks for it to appear in your payment history.

The IRS still isn’t going to write back after you file your tax return to tell you “We’re good, we got it.” But you can get the next best thing by securely accessing your individual tax account and viewing any balances and payment history. How great (and convenient) is that?

 

Record keeping is probably the least interesting part of your business, but it is one of the most important. Sure, you need financial records to file your taxes, but there are so many other reasons! Without up-to-date and complete financial records, how can you know what’s going on in your business? How can you plan? 

Believe it or not, the IRS provides a lot of help with that. Their website has explanations and examples to spell out the requirements and tips to meet them. A good place to start is their summary about financial recordkeeping at https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping. IRS Publication 583, Starting a Business and Keeping Records, gives you even more information at https://www.irs.gov/pub/irs-pdf/p583.pdf.  

No time to read all the details now? Here are four recordkeeping tips to get you started: 

1. Business income should be recorded in a ledger as you receive it. Income should be supported by invoices, bank deposit slips, online receipt records, cash register tapes or other documents that show the source of the income, the amounts and the dates received. 

2. Maintain separate records and bank account for each business and for personal transactions to identify income that derives from your business vs. personal (e.g., investments and wages). A separate business account also makes it easier to reconcile business financial activity between the bank and your financial records. 

3. Business expenses must be documented to prove the amount, date, business purpose, and expense type in order to deduct them. That proof, or documentary evidence, should consist of a disbursements register, canceled checks, and/or invoices. Additional evidence is required for travel, entertainment, gifts, and auto expenses. 

4. “Mixed use” assets, such as vehicles, computers, and cell phones, must be allocated between business and personal use in order to determine the amount that is deductible for your business. Use an automated or manual log to track the use of the asset and maintain the log as support documentation. 

Recordkeeping may be boring, but good financial records help to monitor the progress of your business, prepare your financial statements, and get organized to file your income tax returns. Yes, the IRS requires financial records; make sure that those records are good enough to track the progress of your business and achieve your objectives. 

 

 

Every business is different, but they all have one thing in common. Achieving success can only happen by getting control over and understanding business finances. Making informed financial decisions requires planning, tracking, assessing results, and adjusting as needed.

Tracking business income, expenses, receivables, and commitments may be the most important financial management activity. Why? Because information tracking provides the historical record needed to see what is really coming in and how much it really costs to run the business. Collecting and documenting financial information is the only way to examine and understand it.

So, how do you track your business financial activity? Follow these three steps:

Maintain a Record of all Financial Activity

The IRS does not specify a particular system or format for financial records. The only requirement is that financial records are accurate, complete, and provide enough detail to identify the business purpose of each item. Using QuickBooks or another accounting application is an option, but using a spreadsheet can work, too. Expenses should be tracked by categories, such as rent and advertising, so you know where your funds are going.

 

Organize Source Documents Using a Logical Filing System

No matter what format you use to record your income and expenses, it’s important to keep support documents that capture the five information elements that are required by the IRS – when, what, who, how much, and why. In other words, capture the date, item description, payee/payer, dollar amount, and business purpose. Documenting all five of those elements will substantiate the business income and deductible expense.

 

Keep a Running Total of Your Financial Position

Seeing the financial status of your business at a glance is immensely powerful. That power comes from complete and accurate tracking of all financial activity and keeping running totals. QuickBooks or a bookkeeper can provide that information in the form of financial statements at any time. Spreadsheet users can achieve the same goal by keeping up-to-date totals for income, expenses, receivables, and commitments and examining the bottom lines.

Tracking financial information provides the historical record needed to see what is really going on with your business. Keeping up-to-date financial records and examining the bottom line is the only way to make informed financial decisions to achieve success. Taking these three steps will give you a powerful tool to make informed financial decisions and satisfy the IRS, too.