It's Really Very Simple:
TAX TIME IS ALL THE TIME!
By that we mean in order to be most effective at compiling the information the IRS may require to validate your deductions, you must get into a variety of habits to keep receipts, retain check stubs of both money you spent and money you earned.
You need to write down your appointments in some manner, preferably an appointment book noting where you went, when you went and the business purpose for the trip. We suggest keeping a mileage log in the car for convenience and consistency.
Keep any receipt that you believe may be a valid deduction and write on it somewhere what you purchased and why. If the receipt has no date and/or store printed, make sure that information is written down as well. It’s as easy as keeping a large envelope or box marked “Taxes 2017” and tossing the receipt in the envelope/box as soon as you get home. Then, come tax time, all the receipts are in one place and ready for use.
Retain the actual receipts for any credit card purchases that itemize the purchase in as much detail as possible. The credit card statement will generally only state the store where a purchase was made and the amount spent. You will need to prove what that expense specifically was. Remember, just because you may know what you purchased doesn't mean an IRS auditor understands everything you buy and where you buy it. We have heard of one instance when an auditor was going to deny a deduction for an expense at a Samuel French location in Los Angeles. As actors we may realize that there is virtually nothing you can buy at Samuel French (they sell plays, books and other reference materials specifically for the entertainment industry) that is not acting related, but that doesn't mean that the auditor is aware of the specifics of every store out there and no one should expect them to.
Keep all of your payroll check stubs by company and the order of receipt.
At the very least you need to know who you are expecting tax forms from at the end of the year. If you haven't received them by February 5th or so (the actual deadline is supposed to be January 31st but we suggest giving them--and the post office--some time) find out where they are.
You should also be able to compare each W-2 you receive with the final check stub to make sure the year to date figures are accurate. If they aren't, find out why BEFORE you have your taxes prepared. That's your money!
Over and over we hear from clients that discover they weren't receiving all of the checks that were claimed on their W-2s. If your W-2s show a higher gross than your totaled pay stubs (or at least the final year to date figures on the most recent check), you may not have been paid what you are owed. It could be as simple as a late residual check, but you should know about it. Again--that's YOUR money!
If a check doesn’t come with a stub, make a copy of the check before you deposit it.
Keep some sort of written record of::
Who Wrote It (Company Name)
Contact Information
Date Written
The Amount
The process isn't all that difficult and if you get into the habit each night of placing all of your well documented receipts into a secure location (that fancy envelope or box we discussed earlier), the process for compiling your records come tax time is made all that much easier and productive for you.
This is the official position of the IRS. As we like to say, "In their own words":
The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them. Generally, taxpayers meet their burden of proof by having the information and receipts (where needed) for the expenses. You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Additional evidence is required for travel, entertainment, gifts, and auto expenses. Refer to Publication 463, Travel, Entertainment, Gifts, and Car Expenses.
Prior to the Internal Revenue Service Restructuring and Reform Act of 1998 , this responsibility, or burden of proof, was yours alone. The Restructuring and Reform Act of 1998 calls for a shift in the burden of proof to the IRS in a court proceeding. This shift to the IRS to prove an item on your tax return occurs only in a court proceeding and only if you have met your recordkeeping requirements. This means the rules related to the substantiation of deductions still apply, records required by law still need to be maintained, and you still need to cooperate with any reasonable request for information by the IRS.
New section 7491(a) places the burden of proof on the Service in any court proceedings where the taxpayer has introduced credible evidence with respect to factual issues relevant to ascertaining the taxpayer's tax liability.
To qualify, the taxpayer must:
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Comply with all substantiation requirements of the Code;
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Maintain all the records required by the Code;
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Cooperate with the Service's reasonable requests for information; and,
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If the taxpayer is a corporation, partnership, or trust, meet certain net worth qualifications.
In addition, here are a couple of point you should always remember:
Make sure that all of the companies you work for, and/or have worked for (i.e. residuals) have your correct address. Your employers will send the W-2 or 1099-MISC statements to the last address they have documented. If you move, let these companies know. This is your responsibility. If the address they have on file is for your agent, be aware of this and keep in touch with your agent(s) in order to collect the W-2 so you can file your taxes properly. Better yet, change that address and have them mail the W-2 directly to you.
Changing your address with the union does NOT change your address with the employer. Just because you receive the residual check (usually from the union or your agent) does not mean the company knows where to send a W-2. You don’t want to receive one of those dreaded letters from the IRS that you have failed to report all of your income.
Keep in mind that if you receive an additional W2 after you have filed your taxes you will need to do an amended return to reflect that income. Unfortunately that is usually an added expense for you.
It's YOUR Return!
No matter how much understanding a preparer has, they are only supposed to put on the tax forms the information you give them. If they know and understand the business you are in, they can certainly guide you into providing information that you may have missed. But by the time you are filling out the forms, the year is over and the chance to find that information and checks, receipts and other records are usually gone with it.
As the headline above states, Tax Time is ALL the Time, it's not just the few hours before your appointment.
BEWARE: There are preparers out there who are willing to put almost anything on your return to improve your situation for the purpose of looking good to you, or perhaps to justify their high cost. Unfortunately you are the one signing the return and you are the one responsible for providing the back up proof of whatever they have placed on those forms for you. Ultimately you are the one who will be handed the bill from the IRS if you can’t, not the preparer.
We have heard new clients tell us over and over again they got into trouble because their preparer placed numbers on their return they didn't know anything about. Therefore, when you sign that return you had better know exactly what is on the forms.
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