The tax prep season is upon us. Millions of Americans struggle to meet the deadline for the filing of their personal or business taxes. Being tax prepared and having the documentation needed on hand is an important part of a taxpayer’s tax prep for the prior year.
For most people, this would be either a W-2 form or a 1099 form. The W-2 form is for people who are employed by an employer. The 1099 form is for people who are self-employed and owners of small businesses. These are essential, as they show the income earned by the taxpayer.
They are typically receipts for anything that can be written off, legally. For small business owners, these show costs paid by the owner to conduct business. These may include employee compensation, office supplies, rents paid on office or warehouse space, or a number of other things. This is a vital part of the tax prep process.
Bank statements for either a personal or business account will show a number of things. Income that is earned is deposited into the banking accounts. It can also show purchases made that can be written off by the individual for the company to operate. These bank statements are necessary to prove what has been earned and what has been spent on the individual or business for the prior year.
It’s vitally important for individuals and small business owners to keep these three documents on hand along with their completed tax forms for a period of three to seven years. The government may choose to audit a taxpayer during these timeframes or even sooner if the tax return is deemed incomplete or seems suspect. Being able to prove accuracy about one’s income, expenses and having the documents to support that is quite important.
An estimated 2.5 billion hours a year are spent by small businesses preparing and responding to the government regarding their taxes, according to the National Taxpayer Advocate. Individuals and small business owners can save a lot of time and effort on their yearly tax prep work by keeping these three simple things handy and accessible, before starting work on their taxes.
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