 | | Home Business |
Poor Record-keeping is a Common Problem That Can Be Easily Fixed
Years ago, some Philadelphia-area businesses went out of business because their tax returns had been tossed out by a band of lazy IRS employees. If only those business owners had kept better records! It’s tedious work, but keeping good records is essential — even for small businesses. First, you need a reliable way to monitor the progress of your business. You also need sound information for preparing financial statements, applying for loans, or filing insurance claims. At tax time, good records can keep you from overpaying, and will back up your deductions. That’s why the IRS provides helpful advice on recordkeeping for small entrepreneurs at its web site (www.irs.gov). Several publications are available, including Publication # 583, “Starting a Business and Keeping Records.”
What to Keep
Keep all records that support income and deduction reports. Maintain complete and separate records for each business you have. Mixing them will cause problems at tax time, and it will complicate your ability to accurately monitor each business.
~ Documentation for gross receipts includes: Bank deposit slips, Cash register tapes, Credit card charge slips, Forms 1099-MISC, Invoices, Receipt books
~ Documentation for expenses includes: Canceled checks, credit card sales slips, invoices, account statements, cash register tapes, petty cash slips for small cash payments.
Save records of such business assets as office equipment, furnishings, or other major possessions.
How Long to Keep Records
This varies, but records of income or deductible expenses should generally be kept until the limitation period for each return expires. That can be as much as seven years or longer. Employee tax records should be kept at least four years and should include:
~ Your employer ID number
~ Amounts and dates of wage, annuity, and pension payments
~ Pertinent information about employees
~ Dates and amounts of tax deposits you made
~ Copies of returns filed
For specific details, see Publication 583 at www.irs.gov.
Recording Business Transactions
The best recordkeeping system includes summaries of business transactions, normally recorded in journals. Journal totals are then posted in ledgers. Journals and ledgers are great for organization. But they can’t replace such hard evidence as cancelled checks, receipts, and credit card statements. The IRS can’t argue with material proof. A small business recordkeeping system might include:
~ Business checkbook
~ Daily summary of cash receipts
~ Monthly summary of cash receipts
~ Check disbursements journal
~ Depreciation worksheet
~ Employee compensation record
Computerized System
Computer software packages for recordkeeping can be purchased online or at retail stores. These packages are easy to use and require little knowledge of bookkeeping. A few resources to check include:
~ Microsoft Office software (Microsoft.com)
~ H&R Block's TaxCut (http://www.taxcut.com)
~ TigerDirect.com
IRS Tips
~ Saving each year’s returns will help in preparing future returns.
~ Record expenses immediately, and file them where you can find them.
~ Keep business and personal finances separate. Maintain a separate business checking account and credit card.
~ Make all payments by check for documentation purposes, and reconcile your checking account each month.
More Tips
~ Back up computerized records on disk. Also maintain paper copies. What’s stashed in your computer is often out of sight and therefore out of mind.
~ Lost or damaged records are worthless. Therefore, store important records in steel cabinets with locks. Special documents might be kept in safe deposit boxes.
~ Review your records from time to time to remind yourself of important matters, or potential problems.
~ If something’s important enough to save, it’s important enough to copy. Have at least one backup copy for anything of significance, and keep copies separate from originals. Also consider scanning copies onto CD.
For More Information
IRS information is available online (www.irs.gov) or by calling 1-800-829-3676. You can also pick up many forms and publications at post offices, libraries, and IRS offices.
The Small Business Administration (SBA) also provides information that covers small business recordkeeping in great detail. Visit its site at www.sba.gov, and look for “Recordkeeping in Small Business,” FM-10. This comprehensive, 21-page manual is fully downloadable. HBM
Christopher J. Bachler is a 20+-year veteran business writer and editor, based in Drexel Hill, PA.
Previously published in the February 2007 issue of HOME BUSINESS® Magazine, an international publication for the growing and dynamic home-based market. Available on newsstands, in bookstores and chain stores, and via subscriptions ($15.00 for 1 year, six issues). Visit www.homebusinessmag.com
|
; "Home Business")
