2020 Tax Tips for Process Servers
As the end of the year grows near, it’s time for process servers to start thinking about taxes. Taxes often elicit a big groan, especially for small business owners and those operating as independent contractors who can end up owing money at the end of the year. The good news is that putting a tax strategy in place can help ease the tax burden and better prepare process servers for the future. Furthermore, to make the process go more smoothly in the coming years, process servers should do their best to incorporate the following tips and heed the advice of their accountant. Having everything organized, prepared, and ready to go according to a plan will make tax time a little less painful. Keep reading to learn what you can do before the year’s end and how to prepare for next year.
Hire an Accountant for Your Process Server Taxes
While you might be an expert process server, taxes may not be something you’re particularly good at or interested in. The best option to ensure you’re following all the rules and taking advantage of all applicable deductions is to hire a professional. While we hope to give you some tips in this article, keep in mind that we are not tax professionals and this does not constitute accounting or legal advice.
Keep Your Receipts!
No one thinks a tax audit will happen to them… until it happens to them. Keep copies of receipts for all expenses and charitable donations. Keeping a digital copy is always helpful to ensure that you have a legible copy of the receipt and it makes it easy to keep receipts in chronological order (which will help your accountant later). If things are purchased in person, you can often create a digital copy by scanning it on your printer or even by using an app on your phone.
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There are a number of business expenses that can count as a deduction. Is your business new? Consider including your start-up costs as deductions. Your accountant can help guide you with what you need. If you’re considering starting a new business in the upcoming year, talk to your accountant ahead of time so that you are keeping track of everything you will need come tax time next year. Do you need new business equipment? Take advantage of year-end holiday sales and get a tax write-off. Did you travel? Did you make any corporate gifts? Those could also be deductions. Finally, don’t forget about your standard business expenses, which could include things like paper, postage, and other business overhead. Always confirm what you can and cannot deduct with a licensed CPA to make the best choices.
Marketing, Sales, and Professional Association Fees
Other areas in which you can write off expenses on your taxes include marketing expenses, sales expenses, and professional association fees. Did you have a sales meeting and sign a contract with a client over dinner? That receipt is likely tax-deductible. Did you spend money on advertisements or promotional items for your clients and prospective clients? Save those receipts because those too could potentially be a deduction. Association fees are another professional cost associated with your business, which could be tax-deductible. Did you attend any conferences or seminars? Engage in professional development? Subscribe to industry periodicals? These may be eligible deductions. Remember, always consult a licensed accountant to ensure you’re making appropriate, and most importantly legal, deductions when filing your taxes.
Process Server Vehicle Tax Deductions
Another tax deduction that is often forgotten is mileage. Mileage is important because process servers use their vehicles to do their job. When a vehicle is used for work, it makes it an eligible tax write-off, which can help offset year-end taxes. Each year the tax rate is re-evaluated by the IRS, so you’ll want to pay attention to the current rate — your account will also have this information.
Make things easy for your accountant, and yourself in the event of a tax audit, by keeping meticulous records of your mileage. Keep track of where your trips were and the total mileage for each trip. ServeManager’s software will keep track of your total mileage, but you will also want to make note of your vehicle’s mileage at the beginning of the year in January as well as the year-end mileage in December. Additionally, if you purchased an electric or hybrid vehicle, you may be able to get a tax credit for that. Check with your accountant to see what options are available to you in your filing year.
Consider Charitable Contributions to Maximize Tax Relief
It’s no secret that the holiday season makes everyone feel more charitable. But there’s another reason to be generous: IRS-recognized charities are tax-deductible. Feel good about your good deed and feel good about knowing that you’ll get a little help in return.
Start New Accounting in the New Year
If you’re planning on using new accounting software, it’s fine to purchase it before the end of the year (it would count as a tax deduction), but you may want to consider holding off on using it until the new year to help keep things more organized. Switching mid-year has the potential to cause additional stress when you try to reconcile and gather records for your year-end filing. ServeManager gives you the flexibility of having a full accounting export that is compatible with a number of accounting softwares such as Quickbooks or Xero. ServeManager also has bank-level security so you’ll know your information is secure.
Organize Your Files in Preparation for Tax Filing
Time is money, no matter your profession. Handing over a box of disorganized paperwork and crumpled receipts is a surefire way to rack up a hefty accounting bill. Learn from those of us who have made that costly mistake of putting off paperwork for another day: start the year organized and stay that way. A great way for process servers to stay organized is to use a tool like ServeManager during the year. That way, at the end of the year, you can export the invoice page and provide that to your accountant. Here are some spreadsheet formulas that you can use to generate important totals from the exported spreadsheets:
As we mentioned, you’ll want to keep all of your receipts, but you’ll also want to keep and organize the following records in preparation to hand them over to your accountant. This includes sales, payroll, purchases, and other expenses, as well as supporting documents from throughout the year. Below are some of the most important according to the IRS website.
Types of Records The IRS Recommends You Keep
The IRS has a lot of great information on what types of records you should keep on your business.
- Canceled checks
- Account statements
- Credit card receipts and statements
- Petty cash slips
- Any documents that identify expense, recipient, amount, and proof of payment
- Deposit information
- Receipt books
- Forms 1099-MISC
- Canceled checks
- Credit card receipts and statements
- Purchase receipts
- Any documents that identify recipient, amount, and proof of payment
Any physical property, whether it's an office or equipment, that you use in your business needs to have a record associated with it. The documents that would include the below information could be purchased along with sale invoices, closing statements, or canceled checks. The IRS recommends having documents that indicate:
- When and how the asset was acquired
- The purchase price
- Improvement costs
- Deductions taken (for depreciation, casualty loss, Section 179)
- How you use(d) the asset
- When and how you disposed of the asset (if applicable)
- Selling price
- Expenses of sale
Employment Tax Records
- A process serving company can range from small business and big firm owners to 1099 contract employees and sole proprietors. If you have employees or work with independent contractors, it's important that you keep accurate records of how your employees are classified (including their paperwork) and accurate payroll records.
You’ll also want to hang on to your tax returns for at least three years per the most recent IRS guidelines; the good news is that looking back at them can serve as a helpful reminder for what you need to assemble for the next year.
Tax News Process Servers Can Use
With the change in presidential administration, there are likely to be significant tax changes. Many tax professionals have written articles with their projections of anticipated changes, as well as what they think the new administration will propose. Staying up to speed with tax rates and upcoming changes in your state — as well as federally — will put you in the best position to prepare for your upcoming years’ taxes. But even better is hiring a trusted CPA that will keep you posted with what you need to know and do each year.