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Tips for Better Small Business Recordkeeping

Even if you don't have the money to pay your taxes, file your return on time. The penalty for not filing your tax return on time is 5% a month, whereas the penalty for not paying your taxes on time is only 1/2 of 1% per month.

© 1998, by Jan Zobel, EA

Keep a record of every single deposit made to all bank accounts. Record all money coming in, whether taxable or not. At minimum, note in your checkbook the source of each deposit. Gifts and loans are not taxable but careful records should be kept if you receive either of them.

Use one of your credit cards just for business expenses.The card does not need to be in the business' name. While personal credit card interest is no longer deductible, business credit card interest is 100% deductible.

Deposit all money from the business into your business account. From there, money can be transferred to your personal account. Try to write only business checks out of your business account and personal checks from your personal account.

In the event of an audit, you will be asked to provide your canceled checks as well as your receipts.The check shows that an item was paid for, while the receipt specifies what was bought.

Keep the original charge card receipts from any business expenses you charge. The monthly statement gives no information about what was purchased.

You no longer need to keep the receipt for an expense that costs less than $75. How much it was, to whom payment was made, what type of expense it was, the date paid, and so on.

Your appointment book or calendar is an important part of your tax materials and should be kept with them from year to year. Notations can provide back up information about business mileage, pay telephone expense, business trips, etc.

For tax purposes, the date you charge something is the date it's considered paid.If you charge something before December 31, you can deduct it on this year's tax return even though you won't be paying the credit card bill until next year

Remember the adage, "Garbage in, garbage out." If you don't understand the information you're entering into your computer program, the financial records that come out may or may not be accurate.

If your business has an inventory, keep track of those items that are removed for personal useas they cannot be deducted as a business expense.

The IRS has no tolerance for incorrectly withheld and remitted payroll taxes. If you have employees, learn how to correctly withhold and deposit taxes, hire a payroll service to handle the task, or consider leasing workers.

On December 31st write down your car's odometer reading. If you do this every year, you'll know how many miles you drove during the year. You still need records showing how many of those miles were driven for business.


Jan Zobel , EA, is a Bay Area tax professional and author of the recently revised book Minding Her Own Business: The Self-Employed Woman's Guide to Taxes and Record Keeping (EastHill Press) which is available for $16.95 at bookstores or from the publisher at (800) 490-4TAX. . You can contact Jan directly at:

 
 
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