Welcome! Welcome to Mary Holasek CPA PC.  Whether you are new to my website or returning for a visit, I hope to provide you with timely and valuable information.  We are all aware that there has been quite a bit of spending in our federal government: military; bailouts; stimulus; etc.  We hear talk that the government is looking for more tax revenue, which makes sense.  They are looking at eliminating deductions, and raising tax rates for upper tax brackets as you have heard.  Another area they could be looking at is compliance.  This would be auditing returns.  This could be business income tax returns, personal, sales tax returns, unemployment taxes, etc. Since this is a real possibility, I decided to remind you of some of the compliance issues  that could be looked at if your small business is audited.  First, be aware that typically, the audit period starts with  tax  period 3 years ago, and for some types of audits, they ask for all of the records for the last 3 years    If you have auto expense, you need a log.  On this log, you need to have date, mileage, where to, business purpose.  Remember, commuting between office and home is typically not deductible.  Possibly, if you have a regular route, you could use a typical month.  However, if you don’t, and I’m really stressing this, you should have a log.  If you don’t, on audit, you could lose the mileage deduction.   Meals & Entertainment, there are also record keeping requirements.  You need to have records of when, where, with who and business purpose, for each expenditure.   Travel, again, when, where, business purpose.  Be sure to keep meals and entertainment expense separate from the travel expense.  Meals and entertainment are only 50% deductible, while travel (excluding M&E) is 100% deductible. Company outings with employees:  If a business includes all employees at a function, like a X-mas party for office or summer picnic, cost is 100% deductible, so keep those costs separate.   Gifts, business gifts are limited in value to $25 per recipient per year.  However, things like Christmas Turkeys, hams or such for employees, are acceptable, even if they go over limit. Don’t use same credit card for business and for personal.  If audited, the agent will be looking at personal purchases as well as business.  For example, a sales tax auditor may look at personal purchases along with business purchases on credit card and ask for proof that state sales tax was paid on them. Also, if you use credit card for both personal and business, no credit card interest paid will be deductible. Don’t use your business accounts for personal purchases.  This could cause the corporate veil to be pierced.  Also, same reason as credit card, agent would have access to your personal expenses if your business account is audited. If you have a benefit health care plan, or any other employee benefit plan, you should have documentation.  Could be a written plan, could be in corporate minutes.  But you need these records. Employees vs. subcontractors:  Typically, this audit would be at the state unemployment level.  There is criteria used by government as to if a worker is an employee or subcontractor, including if they hold themselves out to the public (like me); who directs the work; who supplies materials and tools; if paid by hour or job; if worker can determine how work is performed or company hiring decides, and finally if the worker has possibility of economic loss. Debit Card Transactions:  The debit card listing on your bank statement is not adequate for receipt records.  Save all invoices, etc.  If purchase is not clear on invoice, document what purchase was. If deductions are lost through bad record keeping, any interest or penalties go back to period tax was adjusted.  If you have a corporation, this could affect not only your corporate income tax, but also your personal income tax. I am striving to build and maintain long-lasting business relationships, and this website is an extension of my commitment to you. Please feel free to contact me for clarification of any of this information, or additional information about my firm and the services I offer, or to make suggestions regarding my website. I look forward to speaking with you soon.