How Many Years Do I Need To Keep Tax Returns latest 2023

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Tax Tips For Self-Employed Barbers And Hair Stylists

Regardless of the quality of your tax specialist, if you do not provide all the necessary information and figures, your return will be incorrect. And, any poorly made tax return will fail an audit if revealed.

Undocumented cash earnings, inventory errors, overlooked deductions, and missed benefits are common in this industry. Some of these errors increase your federal tax bill; others hijack your future. Self-employed people can take advantage of the same IRS rules used by large corporations, allowing them to lower their tax bill without cheating on their taxes.

The following tips will help independent hair professionals survive an audit.

Tax advice 1 – Without receipts, you will always fail an IRS audit. When all expenses and income have a paper trail, you almost always survive an audit. Tax returns must be kept for at least 10 years and tax receipts for at least 6 years.

Tax advice 2 – All items purchased or created for resale are considered inventory by the IRS. Inventory expenses can only be deducted when that inventory is sold.

Products used on customers are never considered as inventory, which allows the immediate deduction of all company supply expenses. However, many stylists supplement their results by selling hair products or other products to their clients. Knowing how inventory is tracked will minimize non-deductible inventory costs and show you how easy it is to beat an IRS inventory audit.

Tax advice 3 – Overlooked deductions mean you’re putting less money in your pocket and paying too much tax. Even if you create a paper trail every time you use your debit card, credit card, or write a check, it’s not an easy trail to follow at tax time.

And, trying to find that paper trail three years later, when you have to produce your receipts for an audit, will be nearly impossible. Because your business is small, when you work from actual receipts it’s easier, faster, and everything you need to deal with an audit is always ready, in case you are called upon to explain your IRS deductions.

Tax advice 4 – Anyone who does not keep up to date with IRS laws will miss out on tax benefits. Tax laws change every year, sometimes offering huge savings for only a short time. Even if you do your own taxes, it’s wise to speak with a tax professional occasionally, just to keep up to date with new tax credits and planning opportunities.

Tax return preparation begins on January 1 for the profit-minded independent contractor. Starting early is a good way to increase your chances of surviving an audit. Learning how the IRS views the industry in which you earn your self-employment income will show you how easy it is to lower your tax bill while growing your business.

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