We all know we need to track our business transactions. However, there might be some tax considerations you weren’t thinking of…
What? Apportionment is a fancy tax term describing the method you use to allocate your income (or loss) to a specific tax jurisdiction. Determining which states your income should be apportioned to goes back to the concept of nexus. O, man another fancy tax term…
We’ve already talked about the concept of nexus as it relates to sales and use tax on our blog. If you remember, nexus (a.k.a sufficient physical presence) creates the responsibility to pay tax in a state you are doing business. If you want to know more, click here.
Once you determine you have nexus in a state (and we are talking for income tax purposes), there are some considerations when it comes to tracking your assets, income and expenses. Here are a few of the common areas that need to be tracked by state:
- Fixed Assets
If any of those terms don’t sound familiar, our glossary might help.
Tracking these areas from the beginning is much more fun (only because we think accounting is fun) than going back through a year’s worth of financial data to figure it out.
Bottom-line, Uncle Sam only wants you taking a deduction for business miles (makes sense right?). Here are two points we think are important for you to consider:
- Track your mileage (personal, business + commuting (from home to the office and back)
- Personal mileage could be considered a taxable benefit (and should be reported as taxable wages)
Meals, Travel + Entertainment
Here’s the deal on meals, travel and entertainment…these are some of the most scrutinized expenses when it comes to Uncle Sam (that’s because the line is often blurred between personal and business in this area). When it comes to tracking these types of expenses, make sure you are keeping the supporting documentation (ex. receipt or invoice) to substantiate the business purpose of the expense.
We’re talking about your articles of incorporation, bylaws, member and operating agreements, etc. These documents are not only important when starting your business but also important throughout your business lifecycle; keep them where you can find them. In addition, keep copies of any correspondence with Uncle Sam (a.k.a IRS). And if you want to be really nice to your tax professional, share these documents and correspondence with them (keeping them in the loop can save you).
These are just some of the considerations from a tax perspective. Make sure you are staying connected to your business partners (i.e. your tax professional) throughout the year. Need one? We have plenty; let us know how we can help.