Drew Miles Tax Planning Advice and Tax Savings Tips

Everyone wants to be financially free or as Robert Kiyosaki states, “to get out of the rat race”. Drew Miles and Pathfinder Business Strategies encourage clients to avoid using what some would say are tax scams but instead reduce their debt by paying the correct amount on taxes instead of over-paying them. Taxpayers reduce their current business and personal debt and gain income that can be applied to long-term retirement plans. The road to increased tax savings is to audit proof your expenses through a well-documented system using a six-column tax diary, organized files and a reimbursement log.

The “burden of proof” is the taxpayer’s responsibility to the IRS. IRS examiners are not required to help you keep your records. The consequences of not following the IRS tax guidelines are huge to the taxpayer. Possible actions are one-half of one percent a month delinquency penalty during the period that you fail to pay the proper amount taxes, 20% of underpayment attributable to negligence, disregard of the rules, and unreasonable deduction claims. Additionally, 75% of any underpayment attributable to fraud and loss of deductions on interests paid to the IRS, if they were due to a business deduction on your Schedule C.

Pathfinder Business Strategies’ tax record system shifts the burden of proof from the taxpayer back to the IRS. Three separate and distinct tax records are used: permanent files, regular files and a daily tax diary. This applies to all forms of business entities: “S” corporation, “C” corporation, LLC, or a sole proprietorship.

Permanent Files are the prior year’s tax returns, stock purchases and sales, equipment purchases and sales, and similar entries.  Generally, you want to keep any record that relates to more than one tax year in your permanent file including property purchase documents, closing statements, deeds, and other related expenses. Regular files are time sheets, part-time help records, receipts, invoices, canceled checks and other comparable evidence.

A tax diary is the most important of the documentation system. This consists of a permanent record that is separate from the receipts you keep for each item. The tax diary six-column strategy is detailed in the article, Drew Miles on Six-Column Tax Strategy for tracking Business Tax Deductions (Archives, August 2009). Details of expenses are logged into six columns labeled who, what, when, where, how much and mixed deductions. Examples of items for the six-column tax diary are pictures of your office (showing that it is separate from your living area), a printout from your realtor showing comparable cost of office space in your area, meal receipts for business dinners and training expenses, and auto expenses for mileage. Keep your plane tickets, parking and cab receipts (especially if over $75), and the training materials from the promoter to log in travel expenses.

Other elements to tracking expenses are a separate business checkbook with a three-part check and a reimbursement log.  The three-part check method is to send part one, the original of the check to the vendor; staple supporting evidence such as receipts or invoices to part two of the check and file it alphabetically in the vendor file; and to file part three in a numerical file for later reference. A reimbursement log tracks cash outlays and reimbursement expenses by date, description and amount.

Keeping a good documentation system is a worthwhile investment of time and consistency. It justifies business tax deductions, updates and organizes business records and audit proofs your business so that you save money.

Drew Miles is an attorney, author, teacher, and international speaker. He concentrates solely on his commitment to serve his clients and expand Pathfinder Business Strategies’ scope of programs. Visit http://www.pfbs.com for more information.
His highly acclaimed book, Zero to Success, chronicles the steps every new business owner must take to ensure success. He has been featured in Forbes, the Dallas Morning News, American Banker and Yahoo Finance. To date, he has helped 4000 business owners save over $50 Million dollars in taxes. That’s why he’s known throughout the United States and Canada as The Tax Saving Attorney™.

Drew Miles and Pathfinder Business Strategies advises its clients to utilize a tax strategy diary as an easy and safe method of audit proofing their tax records and avoid what some would say are tax scams. It is a simple form applied to business tax deductions using the five questions of “who, what, where, when and how much”.  Pathfinder Business Strategies teaches clients to use this application for each business expense so that their tax diary becomes more extensive as the year progresses.

The first action is to create a tax diary in column form. You can create this file in either a word document or a spreadsheet. A large paper pad can be used if you do not have a computer. Create six columns and label the first five “who” “what” “when” “where” and “how much”. Each row will contain the date of business tax expenses.

The second action is to open both your business and personal checkbook registers and records of cash receipts and begin reviewing expenses from January 1 on. Determine which expenses should have been registered as business expenses, enter the information into the tax diary by date, and answer the five questions.

For example, if you met with a client at a restaurant and inadvertently paid for it with a personal check or credit card, place it in your tax diary and use the five questions to qualify it as a business tax deduction.

The third action would be to add a sixth column to the tax diary strategy and label it “missed deductions”. If that expense was paid for from your personal funds and not reimbursed by the business, then place the amount of that expense in the sixth column.

Go through every business expense, line by line, from that year and enter the information into your tax diary. If a business expense was paid from your personal fund and not reimbursed by the business, then place the amount of that expense in the sixth column.

This may take a while to create an up-to-date business expense history but once you are finished, tally up the numbers in the sixth column. The result will be new identified business tax deductions you may have missed and will prove financially worthwhile to your business.  To avoid a potential tax scam, make sure the deductions you are indicating in your diary are legitimate business expenses.

Drew Miles is an attorney, author, teacher, and international speaker. He concentrates solely on his commitment to serve his clients and expand Pathfinder Business Strategies’ scope of programs. Visit http://www.pfbs.com for more information.

His highly acclaimed book, Zero to Success, chronicles the steps every new business owner must take to ensure success. He has been featured in Forbes, the Dallas Morning News, American Banker and Yahoo Finance. To date, he has helped 4000 business owners save over $50 Million dollars in taxes. That’s why he’s known throughout the United States and Canada as The Tax Saving Attorney™.