The Number One Strategy To Save Thousands Of Dollars On Your Business Taxes
As an investor or business owner, you are always looking for ways to pay less taxes, right? Well, you may be missing on the most important one of all. It’s simple, it’s right in front of you, and it can save you thousands of dollars! It is called keeping good records.
What does it have to do with taxes? Everything. Let’s take an easy example. Your beloved non-paying tenant finally moved out, leaving behind some innovative Crayola artwork all over your walls. In fact, you’re lucky he did leave the walls behind. Now you must repaint the whole place. You spent almost two days meeting with painters, but the lowest bid was $1,400. Finally you got a guy asking $1,200. Another half-hour of bargaining later, he came down to $1,000 – but it must be in cash. Deal!
You do feel good about the deal. You just saved yourself $400, so it was time well spent. Despite your worries, the guy did show up, and his work turned out decent for the price. You give him an envelope with ten $100 bills, and it’s finally Miller time.
Ten months later, you bring your shoebox full of receipts to your CPA . Did you remember about that $1,000 cash job which had no receipt? Oops. Now let’s look at the cost of this oops, shall we? $1,000 worth of labor is missing from your deductions. In other words, your taxable income got $1,000 too high. On a typical tax return, this creates $250 extra tax. In other words, you spent several hours trying to save $400 on labor, and then you flushed $250 of your savings down the toilet. (If you feel that $250 donated to the IRS is money well spent – please accept my apology.)
It gets worse. My first example was a make-ready between tenants. What if this painting job was done on a flip house you’re preparing to sell? Well, your extra tax on the forgotten $1,000 labor could easily be $400 instead of $250. Yes, you heard it right: the entire savings of $400 that you so diligently negotiated is out the window. How does it feel now?
And that was with “just” one thousand dollars. If you misplace $10,000 worth of receipts (and I have seen records worse than that) – the potential cost of your sloppiness is a whooping $4,000. This is four thousand dollars of your money, folks!
So, before you hire a lawyer to set up fancy tax-saving corporations, before you invest in manuals on creative real estate taxation, before you take a QuickBooks class – take care of the number one tax-saving strategy: Keep. Good. Records.
Reprinted courtesy of Michael Plaks. Visit www.MichaelPlaks.com The information and opinions presented in the above article are general in nature, not intended to address specific tax situation and/or to substitute for professional consultation, and shall not be considered legal advice. Email: michael@MichaelPlaks.com or call 713-721-3321 The author is a Houston-based accountant, working exclusively with real estate investors. He is a federally licensed Enrolled Agent who can represent his clients in their dealings with the IRS.