Year-end Tax Jobs You Need To Do Today
Author: Brad Howland
First Posted: December, 2002
Here are three things you should do every December 31. Make the tax department and your accountant happy by taking care of these important year-end details.
Start a New Shoe Box
Your tax preparer's life will be a lot easier if you start a new set of records on January 1. Your prior-year income tax documents need to be completely separate from the current year.
U.S. taxpayers report income on Schedule C using either of the following methods:
- The Cash Method – report income and expenses in the year they were actually received and paid out.
- The Accrual Method – report income and expenses in the year they were incurred, regardless of when the cash actually changed hands. You must use this method if you operate a business that has an inventory, such as a musician with CD's for sale.
Canadian taxpayers must use the accrual method. Don't worry if these distinctions sound like Greek to you. Just remember that, no matter how you keep your records – in a shoe box, alphabetical file, or set of envelopes – you should start a new set for the new year, because you can only deduct on last year's income tax return expenses that were paid out or incurred last year.
Check Your Odometer
Do you deduct part of your automobile expenses for business purposes? You should keep a record of business and personal mileage, unless you are in the U.S. and take advantage of the standard mileage rate. Either way, it's important to get a reading from your odometer on January 1, write it down, and place it with your tax documents, so your tax preparer can correctly calculate the allowable deduction for the year.
Count Your CD's
If you sell CD's and deduct the production costs as a "Cost of Goods Sold" expense (which you should do), you need an accurate count of each CD still in stock on December 31, how many of each CD sold during the year, and what price they sold for. Experience shows that musicians often get this mixed up. The simplest way to get it right? Count those CD's today!
Related Articles by Brad Howland
Income Tax Implications of Recording a CD
Record Keeping (Canada)
Record Keeping (U.S.)