In This Issue
Do You Know…
Why coins have "ridges"? The ridges, or milled edges
as they are officially called, were added to prevent the shaving of coins. When
coins were made of gold and silver, people would often shave the edges of coins
before spending them. Eventually, they would have enough shavings to use as
money. Today, silver and gold are no longer found in coins, but the milled edge
style is still used.
Everyone in business must keep records; this can be a challenge
for smaller or home-based businesses, where the owner or primary person in
charge must wear several hats at once, thus leaving little time for record
keeping. But keeping good records will help you with many activities, including
monitoring the progress of your business, and preparing your financial
statements and tax returns.
What good records can help you do
Monitor your business. Monitoring your business through
good records can show you whether your business is improving, which items are
selling, and what changes you need to make.
Prepare financial statements. Good records are required
to prepare accurate financial statements. These include profit and loss
statements and balance sheets. These statements, in turn, can help you in your
dealings with your bank or creditors, e.g., obtaining a line of credit or loan,
to help increase your business.
Identify source of receipts. A business receives money
or property from many sources. Your records will help you identify the source of
your receipts, so you can separate business from non-business receipts and
taxable from nontaxable income.
Record deductible expenses. Keep track of deductible
expenses throughout the year as they occur. If you don’t, you may forget
expenses when you prepare your tax return.
Prepare your tax return. Good records are essential to
preparing your business’ tax return. These records are needed to support the
income, expenses, and credits you report. Generally, these are the same records
you use to monitor your business and prepare your financial statements. In
addition, you must keep these records in case the IRS examines any of your tax
returns and asks you to explain any items reported.
Kinds of records to keep
Generally, the law does not require any special kind of
records, but you should choose a record-keeping system suited to your business
that clearly shows your income. In addition, the business you are in affects the
type of records you need to keep for federal tax purposes. You should set up
your record-keeping system using an accounting method that clearly shows your
income for your tax year. Your record-keeping system should include a summary of
your business transactions; the summary is usually made in your books, such as a
journal and ledger. Your books must show your gross income, deductions, and
credits. For most small businesses, the business checkbook is the main source
for entries in the business books, but supporting documents must also be kept.
Supporting documents include sales slips, paid bills, invoices,
receipts, deposit slips, and canceled checks. These documents support the
day-to-day entries in your books and on your tax returns.
Gross receipts. Gross receipts are the income you
receive from your business. You should keep supporting documents that show the
amounts and sources of your gross receipts. Documents that show gross receipts
include cash register tapes, bank deposit slips, receipt books, invoices, and
credit card charge slips.
Purchases. Purchases are the items you buy and resell
to customers. For a manufacturer or a producer, this includes the cost of all
raw materials used to manufacture the finished product. Supporting documents
should show the amount paid and that the amount was for purchases. Documents for
purchases include canceled checks, cash register tape receipts, credit card
sales slips, and invoices. These documents also will help you to determine the
value of your inventory at the end of the year.
Expenses. Expenses are the costs you incur—other than
purchases—to carry on your business. Supporting documents should demonstrate
the amount paid and that the amount was a business expense. Examples include
canceled checks, account statements, invoices, credit card sales slips, and
petty cash slips for small cash payments.
Assets. Assets are the property that you own and use in
your business. Records are needed to verify certain information about your
business assets and to figure the annual depreciation. Your records should show
the following information:
• When and how you acquired and disposed of the asset.
• Purchase price.
• Cost of any improvements.
• Section 179 deduction taken.
• Deductions taken for depreciation.
• Deductions taken for casualty losses, such as losses
resulting from a fire.
• How you used the asset.
• Selling price.
• Expense of sale.
Types of documents that may provide this information include
purchase and sale invoices, real estate closing statements, and canceled checks.
If you don’t have a canceled check, you may be able to prove payment with
certain financial account statements prepared by financial institutions. These
can also include statements created for the financial institution by a third
party, such as a statement showing an electronic funds transfer.
Your business checking account
Your business checkbook is perhaps the single most important
record that you keep for your business. It should reflect the receipts of income
and expenses you pay. You should deposit all daily receipts in your business
checking account, and the deposit slip should note the source of the deposit.
Make sure to keep copies of all slips. Try to make all payments for your
business by check. This is a good way to document business expenses. Avoid
writing checks payable to cash; if you must do so to pay a business expense, you
should include the receipt for the cash payment in your records. If you can’t
get a receipt for the cash payment, make a note in your records explaining the
payment at the time the payment is made.
These are some of the record-keeping basics you need to keep
your business records in good shape. However, each business is different and may
have particular bookkeeping requirements. If you have any questions, please
Finding Social Security and Medicare Info on the Web
Want to get basic information about your Social Security
benefits and Medicare? Try going to the Social Security Administration’s (SSA)
and Medicare’s Web sites. At the SSA Web site, www.ssa.gov, you can
find forms and publications. If you are planning for retirement, you can get a
projection of future Social Security benefits by filing Form 704, Personal
Statement Request, with the SSA. The form can be downloaded from the Web
site. You can also obtain a copy by calling 1-800-SSA-1213.
Anyone needing Medicare information can go to www.medicare.gov.
The site has a Medigap Compare section that contains information on Medigap
insurance policies, including rating methods and tips on shopping for Medigap
plans. The Guide to Health Insurance for People with Medicare is
Medical and dental expenses can be itemized as deductions on
Schedule A if they are uninsured expenses that are more than 7.5% of your
adjusted gross income. These can be expenses you paid for yourself, your spouse,
and your dependents. Whether you’re tallying up expenses to see whether you
qualify for the deduction in 1999, or want to know what you need to keep track
of in 2000, below is a checklist of items that can and cannot be deducted.
Expenses you can include
• Medical and hospital insurance premiums.
• Medical services fees (from doctors, dentists,
surgeons, specialists, and other medical practitioners).
• Meals and lodging provided by a hospital during medical
• Qualified long-term care.
• Hospital services fees (lab work, therapy, nursing
services, surgery, etc.).
• Cost of lead-based paint removal.
• Expenses of an organ donor.
• Cost and care of guide dogs or other animals aiding the
blind, deaf, and disabled.
• Capital expenses for equipment or improvements to your home
needed for medical care.
• Oxygen equipment and oxygen.
• The part of a life-care fee paid to a retirement home
designated for medical care.
• Prescription medicines and insulin.
• Psychiatric care at a specially equipped medical center
(including meals and lodging).
• Social Security tax, Medicare tax,
FUTA, and state
employment tax for a worker providing medical care.
• Special items (artificial limbs, false teeth, eyeglasses,
contact lenses, hearing aids, crutches, wheelchairs, etc.).
• Special school or home for mentally or physically disabled
• Stop-smoking programs.
• Transportation for needed medical care.
• Treatment at a drug or alcohol center (includes meals and
• Wages for nursing services.
Expenses you cannot include
• Diaper service.
• Expenses for your general health, even if done to follow a
doctor’s advice, such as: health club dues, household help, swimming lessons,
or a weight loss program.
• Funeral, burial, or cremation expenses.
• Life insurance or income protection policies, or policies
providing payment for loss of life, limb, sight, etc.
• Maternity clothes.
• Medical insurance included in a car insurance policy
covering all persons injured in or by your car.
• Medicine you buy without a prescription.
• Nursing care for a healthy baby.
• Surgery for purely cosmetic reasons.
• Toothpaste, toiletries, cosmetics, etc.
Timing of the expenses and the deduction
You can deduct in a certain tax year only the medical and
dental expenses you paid during that year, regardless of when the services were
provided. If you pay medical expenses by check, the day you mail or deliver the
check is the date of payment. For example, if you had dental work done in
December 1998 but mailed a check to the dentist in January 1999, that expense is
eligible as a deduction in 1999. If you use a pay-by-phone or online account to
pay your medical expenses, the date reported on the financial institution’s
statement showing when payment was made is the payment date. You can include
medical expenses you charge to your credit card in the year the charge is made.
It does not matter when you actually paid the amount charged the same year.
Few things are more frustrating than an inadequate voice-mail
message. We have all received them; messages that were left in a rush, or with
no return telephone number, or an unclear pronunciation of a name. You can help
yourself and others by taking the time to collect your thoughts before you leave
a message, and doing the following:
• Speak clearly and more slowly than you normally would. This
is particularly important when leaving your name or phone number.
• If you would like a return call, leave your phone number at
the beginning and end of the message, so the person you call can check to see
whether he or she wrote it down correctly, without having to replay the whole
• Let the person know when is the best time to return the
• If a return call isn’t necessary or expected, state so.
• Don’t leave messages that are longer than a minute. You
will rush, and will likely end up having to speak directly with the person
If you want to receive better voice-mail messages, consider the
• In your voice-mail message, make sure you clearly and
slowly state your name, position in your company, and/or what products or
services you are responsible for.
• In your message, request that when leaving a phone number
to please leave an area code and/or the best time to return the call.
• Let the caller know when to expect a return call. For
example, "I will return your call within 24 hours."
Currently, only those who itemize their deductions may deduct
charitable contributions on their federal tax returns. However, 70% of taxpayers
don’t itemize and instead take the standard deduction. To promote fairness and
increase charitable giving, legislation is being promoted to allow taxpayers who
don’t itemize to deduct some charitable contributions. For example, for years
2001 to 2005, a couple who files jointly would be able to deduct 50% of
charitable gifts over $2,000; for single filers, the threshold would be $1,000.
After 2005, the thresholds would drop for married couples and singles to $1,000
and $500, respectively.
* * *
Increasing deductible amount of appreciated gifts to charities
Another proposal is meant to encourage donors to give gifts of
appreciated stock, art, real estate and other assets to charitable
organizations. Currently, taxpayers making these types of gifts can deduct only
up to 30% of their adjusted gross income (AGI). If the gift is made to a private
foundation, the limit is 20%. Proposed legislation would increase these AGI
limits to 50% and 30%, respectively.
* * *
Elimination of estate and gift taxes
In late 1999, a Congressional bill containing a provision to
phase out and eliminate all estate, gift, and generation-skipping taxes was
vetoed. But this bill or a similar measure is likely to come up again in 2000,
and will likely be a topic in the presidential race. Because it is still
possible that this significant tax law change will be made, it is important to
reevaluate any substantial lifetime gift arrangements you may have planned.
Employees who work for tips. If you received $20 or more in
tips during March, report them to your employer. Use Form 4070.
Individuals. File an income tax return for 1999, and pay
any tax due. If you want an automatic 4-month extension of time to file the
return, file Form 4868.
If you are not paying your 2000 income tax through withholding
(or will not pay enough tax during the year that way), pay the first installment
of your 2000 estimated tax. Use Form 1040-ES.
Household employers. If you paid cash wages of $1,100 or
more in 1999 to a household employee, file Schedule H of Form 1040 with your
income tax return and report any employment taxes. Report any federal
unemployment tax (FUTA) on Schedule H if you paid total cash wages of $1,000 or
more in any calendar quarter of 1998 or 1999 to household employees. Also report
any income tax you withheld for your household employees.
Partnerships. File a 1999 calendar-year return (Form 1065).
Provide each partner with a copy of Schedule K-1 (Form 1065), Partner’s
Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If
you want an automatic three-month extension of time to file the return and
provide Schedule K-1, file Form 8736. Form 1065 must then be filed by July 17.
Corporations. Deposit the first installment of estimated
income tax for 2000.
Employers. For Social Security, Medicare, withheld income
tax, and non-payroll withholding, deposit the tax for payments in March if the
monthly rule applies.
Employers. For Social Security, Medicare, and withheld
income tax, file Form 941 for the first quarter of 2000. Deposit any un-deposited
tax . (If the total is less than $1,000 and not a shortfall, you can pay it with
the return.) If you deposited the tax for the quarter in full and on time, you
have until May 10 to file the return. For federal unemployment tax, deposit the
tax owed through March if more than $100.
Employees who work for tips. If you received $20 or more in
tips during April, report them to your employer. Use Form 4070.
Employers. File Form 941 for the first quarter of 2000.
This due date applies only if you deposited the tax for the quarter in full and
Employers. For Social Security, Medicare, withheld income
tax, and non-payroll withholding, deposit the tax for payments in April if the
monthly rule applies.
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