I was first truly exposed to tax in 2009 while taking Federal Income Tax I at Tennessee State University under the tutelage of Dr. Larry Maples. I also had the fortunate opportunity of running a V.I.T.A. tax site working side by side with Dr. Maples ensuring quality and accuracy of individual’s tax returns all across the city of Nashville. In addition to that, I had the opportunity to work for the IRS under the leadership and mentorship of Artie London, John Lee and Kenneth Taylor. From there, my knowledge has grown exponentially with IUPUI and the Kelley School of Business family.
Since entering the “tax world” in 2009, I have been asked a myriad of tax questions from clients, family, friends and even coworkers. As people approach me, I see this “deer in the headlights” look on their faces or hear panic in their voices, and I’ve found the concern tends to be about deductions.
My first question after I see their confusion is always, “What system do you have to account for your records?”
Deductions are a critical asset for a taxpayer, because they can limit or even eliminate taxable income. Taxable income is used to determine a taxpayer’s tax liability in percentages determined by Congress and enforced by the IRS. Keeping a proper system in accounting for your deductions (whether business or personal) is key for proper filing or receiving the most accurate tax liability or refund. A system could be as simple as keeping a log of receipts and invoices or as sophisticated as using a software to help, like QuickBooks.
Another way to make sure you are properly recording your deductions is - instead of paying cash or using a personal credit card for business, write a check or use a debit/ credit card in the business name to make sure you are keeping exact and accurate records. This will limit the risk of possible business deductions that become convoluted with other non-deduction transactions.
Let me quickly paint a picture. Think of records as your tickets to enjoy the rides at the “Deduction Theme Park.” The people who run that park are the IRS. If you do not have sufficient fare (documentation), you can run the risk of being denied the many rides (deductions) that the park has to offer. We all have been subjected to the empty feeling of not being allowed to ride - and this can equally happen when the IRS rejects your deduction due to insufficient records.