Most taxpayers keep a Fixed Asset Report to record significant asset purchases. An asset number, if any, description, purchase cost and purchase date are needed on this report. Some taxpayers use the Depreciation Schedule for this purpose.
A good physical survey of assets in Jefferson County on 10/1 of each year might reduce your tax. Personal property tax is only paid on personal property located in Jefferson County on the lien date, 10/1 of each year. Many taxpayers leave the old assets on the Fixed Asset Report or Depreciation Schedule and add on the new assets.
Numbering an asset is useful for keeping up with disposals. If a tag with this number is put on the asset and it is disposed, the person disposing of the asset should send this tag along with a note about the disposal to the accountant responsible for fixed assets. Tagging also deters theft and is good for scheduling periodic maintenance of vehicles and machines.
Although assets may be reported as late as 12/31 to the county, memories are fallable. It is usually best to do the report on 10/1 or shortly thereafter. If a taxpayer has a local office or factory in Jefferson County, a query to the onsite manager on 10/1 in Jefferson County is recommended. Since leased assets are required to be reported on the ADV-40 return, a query about leased assets is also needed.
Many taxpayers use an accounting firm to file their return. It is a good idea to get a copy of this return from the firm to review for discrepancies before it is filed. Remember that it is difficult to hold an accounting firm financially liable for mistakes made in reporting. Refunds of taxes are only given for two prior years and several hoops must be jumped to get the refund. Errors or omissions in the tax assessor's favor are for the current year and five prior years. Copies of personal property reports should be kept for six years.
It is a good idea to keep a disposal log. Record the asset number, asset description, disposal date and how disposed ie sold, scrapped, donated to charity. This is an excellent record to show an auditor.
A transfer log is also a good idea. Record the asset number, asset description, transfer in date or transfer out date, and the out of Jefferson County location.
A file folder of purchase documents (invoices, bills of sale, receiving report) in asset number order will really impress an auditor. A receiving report would prove to a auditor that the machine really was delivered on 10/2 rather than 10/1. Having a huge expensive machine delivered 10/2 rather than 10/1 might be very much worthwhile, but be prepared to prove that it really was delivered on 10/2. Keep shipping documents. Keep these documents at hand until six years after the asset is disposed.
If audited the auditor will always want to see five years of U.S. tax returns. The IRS can ordinarily only go back three years on an audit. The auditor is aware of this difference but it has no bearing on this requirement.
A refusal to supply requested documents to an auditor is a serious matter.
Many taxpayers will not need an expensive, comprehensive system for keeping up with assets. A computer or special software is rarely required for most small businesses. For many businesses a large binder is sufficient. Some taxpayers keep lists of assets on a computer spreadsheet such as Excel.
In Alabama, the Tax Assessor is correct until proven wrong. The burden of proof is on the taxpayer. The Alabama Taxpayer's Bill of Rights does not apply to ad valorem taxes. As previously stated the law allows the Tax Assessor to audit the current year and five prior years. If you are audited it is best to have good recordkeeping.