subject: How Your Company Book Can Protect Your Tax Savings [print this page] This week I'll share my third planning tip, but before I do, I want to share a very important item that could significantly impact your tax planning:
If the IRS believes that your tax planning doesn't meet their standards, then they can fine you an amount equal to 40% of the tax they think you should have paid.
This is a new law included in the health care reform. While the passing of the health care reform dominated the news, nobody talked about this one "little" law that could have the single biggest impact on the American taxpayer.
It gives the IRS a gigantic sledgehammer to use on any taxpayer any time it decides it doesn't like your tax planning. What's more, there is no way out of this penalty other than going to court to prove that your tax planning is valid.
With tax planning now more important than ever, let's get into my third planning tip:
Planning Tip #3: Update Your Company Book Your company book is a great tool to protect your tax savings.
What is a Company Book? The company book is the place to organize the history of your company. It can include organizational information, meeting minutes, including annual minutes, annual financial statements, and much more.
Who Should Have a Company Book? Every entity should have a company book! It doesn't matter if the entity is an LLC, partnership or corporation.
How Does a Company Book Protect Tax Savings? In my last few reports, I've revealed a few of the areas that are the biggest offenders when it comes to missing tax deductions. They include:
Home office Travel Vehicle Meals & entertainment
These areas are also the biggest offenders when it comes to audit adjustments. It is pretty much a guarantee that if you are audited and have claimed any of these deductions, the auditor will want to see support for theses deductions.
Let's use the home office as an example.
Last week I shared how your bookkeeping can help you identify more legitimate expenses to include in your home office deduction which means greater tax savings for you. Your company book can protect these tax savings!
While your bookkeeping supports the amounts, your company book can support the purpose and use of your home office.
To claim a home office, certain rules must be met. Your company book is an ideal place to document how your home office meets these rules.
For example, you could have a company meeting about the use of your home office, document the meeting in written meeting minutes and put that in your company book.
The more details you include the better. For example, in your meeting and meeting minutes, discuss and list the specific activities preformed in your home office that support your home office qualifying for the home office deduction. You can also include the calculation of the percentage of your home used for your home office.
Imagine an auditor's reaction when you can readily hand over this type of support. Your company book is a powerful and simple way to protect your tax savings!
by: Tom Wheelwright
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