Most of us dread the record keeping part of our business. But believe it or not, it doesn’t have to be that bad and it doesn’t require an accountant, or even an in depth knowledge of accounting to put a simple and effective system of record keeping into place. All you need are some basics and a little help at the end of the year.
1. Obtain a business license. They’re usually issued through your city, town, municipality or county. They’re relatively inexpensive and they authenticate your business (authentication is very important to the IRS).
2. Open a bank account for the exclusive use of your business transactions. You’ll probably need a business license to do this (see 1. above). This account should be separate and distinct from the one you use for your daily and personal needs.
3. Keep all business bank statements and cancelled checks.
4. Run *all* of your business transactions through your business bank account. Deposit all income from sales you generate into your business bank account and pay for business expenses using checks from your business bank account. If you still work a job, deposit your paycheck into your personal account, and make sure that you pay for all personal expenses out of your personal account too.
5. Understand the difference between business expenses and personal expenses. Business expenses are the costs incurred to operate your business. They must be ordinary and necessary. Ordinary expenses are those that are common and accepted in your field. Necessary expenses are those that are helpful and appropriate for your business.
6. Dedicate a credit card to your business purchases. If you must use credit for business expenses, earmark one credit card for business use only. Be sure to make payments on this card using checks from your business bank account.
7. Keep every receipt, every invoice and every piece of paper you receive as a result of purchasing goods or services for your business. If a vendor/supplier/company you do business with does not provide you with a receipt, request one. This is especially important for cash transactions!
8. Don’t miss some of the frequently overlooked or forgotten business expenses:
Advertising giveaways and promotion
Audio and video tapes related to business skills
Bank Service Charges
Business association dues
Business related magazines and books
Casual labor and tips
Coffee and beverage service
Credit Bureau fees
Education to improve your business skills
Online computer services related to business
9. File your receipts immediately! If you want to be sophisticated, deposit receipts into separate file folders distinguished by vendor names, or types of expense. Or, you can always throw your receipts into a file marked “tax folder.” Either way works; however, the more sophisticated you get, the less it will cost you at the end of the year to have your tax return prepared.
10. Save all documents sent to you marked “Important Tax Information”. Companies or individuals with whom you do business may report to the IRS on your behalf. If they do this they will send you copies of what’s been provided. Your tax preparer *must* be given this information.
About the author
About the Author: Jacqueline McLaughlin Hale is a CPA and author of “Your Home Based or Internet Business–Protect it and Yourself from the IRS”. To obtain your free copy please send a blank email to firstname.lastname@example.org. And if you’re working too hard and would like to add some balance back into your life, please visit her website, Between Friends, at http://www.betweenfriends.org