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Small Business Record Keeping

There’s a lot you can do as a small business owner to minimize the cost of having your tax returns prepared.  One of the simplest and easiest ways to do this is to set up and maintain your own financial records. In addition, keeping up with your business’s financial records will allow you more control of your financial information and operations.  Your financial records don’t have to be computerized.  For many small or part-time businesses, using a computer to keep up with your financial records may take more time than would be needed to maintain a manual system. And besides, it’s a lot easier to “automate” an existing system or process than to computerize it from the start.

Whether you use a computer or manual record-keeping system, you first have to make sure that you file paid bills, canceled checks and other business documents in an orderly fashion and keep them in a safe place.  Depending on the volume of financial transactions your business generates, you may use envelopes, filing boxes, or an accordion file divided into the categories listed below. At a minimum, put receipts in the proper categories throughout the year so it’s easier to total them up at tax time. Staple the adding machine tape to each folder or stack of receipts. The IRS does not require you to keep a formal “set of books;” however, you need to find the best record keeping system that works for you.

I recommend that any business’s financial record-keeping system includes the following:

Separate Business Bank Account(s) and Credit Card(s)

Use these accounts for all business transactions.  Try not to use these for personal expenses. Make sure that you reconcile these statements every month. When it’s time to “pay yourself”, simply write a check or transfer funds from your business bank account to your personal account.

Mileage Log

Purchase a simple mileage log book at a local office supply store and use it every time you drive your vehicle for business…even that trip to the office supply store generates a legitimate tax deduction.

Summary of receipts of gross income

Totaled daily, weekly or monthly. Keep track of where your money comes from, putting notes explaining the origin of all money received

Items Purchased for Resale

Including components and supplies used to build items for resale.

Monthly summary listings of expenses

At a minimum, your filing system should separate expense items into the following categories:

  • Advertising
  • Automobile
  • Commissions & Fees
  • Liability and Casualty Insurance
  • Health Insurance
  • Mortgage Interest
  • Other Interest
  • Legal & Professional Fees
  • Office Supplies
  • Vehicle & Equipment Lease or Rentals
  • Other Lease or Rental Payments
  • Repairs & Maintenance
  • Supplies (used in the business, not sold to customers)
  • Taxes & Licenses (not income taxes)
  • Travel & Lodging
  • Meals & Entertainment (Write: who, what, where, when, and why on each receipt)
  • Utilities
  • Telephones, Long Distance, Internet, Pagers, Answering Services, and other communications

Asset purchase listing (equipment, vehicles, real estate used in business)

List major purchases – items that are expected to last at least a year

Employee compensation record (if you have employees)