Keep the following documents throughout the year for your accountant, and in the event of an IRS audit.
- Income (wages, interest/dividends, etc.)
- Exemptions (cost of support)
- Medical expenses
- Charitable contributions
- Child care
- Business expenses
- Professional and union dues
- Uniforms and job supplies
- Education, if it is deductible for income taxes
- Automobile, if you use your automobile for deductible activities, such as business or charity
- Travel, if you travel for business and are able to deduct the costs on your tax return
We also recommend keeping your bank account and loan records on hand. You do not need these for tax returns, however, these may be beneficial if you find yourself being questioned by the IRS about your taxable income versus your lifestyle.
Federal law requires you to maintain copies of your tax returns and supporting documents for three years. However, the IRS believes there may be indication of fraud, it may go back six years in an audit. Read our record retention guide for guidelines for maintaining copies of your tax returns and records.
Here are a few suggestions we recommend for improving your small business cash flow.
- Actively collect receivables: Be aggressive when managing accounts receivable and quickly collect overdue accounts.
- Tighten credit requirements: Tightening your credit requirements means more customers must pay cash for their purchases, resulting in increased cash on hand. Keep in mind though, tightening credit requirements may also serve as a disadvantage for those customers who cannot pay cash up front for products and services.
- Manipulate the price of your products: Don’t be afraid to adjust pricing. Regularly monitoring the factors that affect pricing on your product, such as market, distribution cost, and competition, will allow you to remain competitive and increase your profit.
- Take out short-term loans if needed: If you experience a short-term cash-flow problem, a revolving credit line and equity loan may be helpful.
- Increase your cash sales: We already discussed tightening credit, but not losing sales. Increased sales will result in inventory depletion that must be replaced. Offering a small incentive for cash payments will allow you to bring in cash and pay for replaced inventory, versus waiting 30 days until after the sale to collect the payment through credit.
Traditional IRAs defer taxation of investment income and withdrawals are taxable income–except for withdrawals of previously non-deductible contributions. Roth IRAs are subject to many of the same rules as Traditional IRAs, but there are several differences, the primary one being that contributions are not deductible and are made after-tax. As such, qualified distributions are generally tax-free.
If you have income from wages or self-employment income, you can contribute up to $6,000 in 2021 (same as 2020). As such, IRAs are available even to children who meet these conditions. Persons age 50 and older can contribute an additional $1,000 for a total of $7,000 in 2021 (same as 2020).
Not everyone can have a Roth IRA. The following conditions apply:
- You can’t contribute to a Roth IRA for a year with income (AGI) above $140,000 if single or $208,000 on a joint return in 2021 ($139,000 and $206,000, respectively, in 2020).
- You must have earnings from personal services (at least $6,000 or more) to make the (maximum) contribution, although an additional contribution of $1,000 is allowed for persons age 50 and over.
Contact us today for a free consultation*, to see how we can maximize your tax savings.