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)