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.
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%
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.
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
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.
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: [email protected]