Keep Those Records Orginized
Successful tax planning requires a great deal of documentation, some of which may come as a surprise, says Clifford Friedman, a CPA and real estate sales associate in Coral Springs. “I can’t stress how many thousands in legitimate deductions are often missed simply due to inadequate records,” he says. Friedman offers the following advice:
• Keep a record of all income. The IRS will assume all deposits into all accounts are income, unless you can prove otherwise, so document the source of each one. Be prepared to account for income reported on W-2 and 1099 forms.
• All expenses must be documented by receipts/invoices and proof of payment. Any item related to your business may qualify for deduction in the year paid (regardless of what period the payment applies to).
• Vehicle expenses, whether actual or the standard mileage allowance, require a record of total miles and of business miles driven for the year. Track business use separately for each income and investment activity, so deductions can be allocated among them.
• Home office expenses can add up to thousands in deductions per year. Document every expense related to your home, including mortgage interest, real estate tax, insurance, utilities, repairs, maintenance, association assessments, improvements, etc. The business use percentage of these items equals the square feet of the office divided by the total square feet of the home, which must also be documented.
• Real estate professionals get a special benefit regarding deductibility of losses on rental property activities, which are typically limited. To qualify, among other requirements, you must spend at least 50 percent of your time in real estate activities. Keep a diary of time spent on all such activities.