An article in Barron’s supports, in a big way, the importance of keeping good business records. The article details how the IRS disputed a $75,000 repayment of a loan for a business owner named Henry resulting instead in a $68,000 dividend, on which Henry owed tax.
Joseph Gelband, a tax attorney from Larchmont, New York, wrote the article. He provides some wise counsel for business owners:
[Henry’s] story points to the importance-especially for a closely held corporation-of observing formal business practices, if for no other reason than to create a record. Minutes should be kept, and updated at least annually. Executive salaries, bonuses, and loan transactions should be reflected in those minutes, which should be reviewed by the company’s accountant when statements are prepared. The existence of that kind of paper trail would have left Henry in a much stronger position.
Now is a great time to document those transactions before the end of the year.