Tips on Keeping Good Business Records
Updated: Jul 24, 2019
“Great things are done by a series of small things brought together,” – Vincent Van Gogh.
Although this well-known painter probably didn’t have taxes on his mind when saying this, Van Gogh’s saying can undoubtedly be applied to your business in many ways. In your business, it is important to realize just how important the smaller things are, and the big picture it creates when you bring all those small pieces together.
For both small and large businesses, a good recordkeeping system should include a summary of your business transactions. Some key components of your business that the IRS suggests you keep track of are gross receipts, purchases, expenses, travel and other expenses, assets, and employment taxes.
Gross Receipts: the income you receive from your business
Examples:
Cash register tapes
Deposit information (cash and credit sales)
Invoices
Form 1099-MISC
Purchases: the items you buy and resell to customers.
Examples:
Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred
Cash register tape receipts
Credit card receipts and statements
Invoices
Expenses: the costs you incur (other than purchases) to carry on your business
Examples:
Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred
Cash register tape
Account statements
Credit card receipts and statements
Invoices
Petty cash slips for small cash payments
Travel and Other Expenses:
Examples:
If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses.
Assets: the property, such as machinery and furniture, that you own and use in your business.
Examples:
When and how you acquired the assets
Purchase price
Cost of any improvements
Section 179 deduction taken
Deductions taken for depreciation
Deductions taken for casualty losses, such as losses resulting from fires or storms
How you used the asset
When and how you disposed of the asset
Selling price
Expenses of sale
You might be thinking, “Yeah, these are good, but why do I really need to keep track of ALL of these?” Well, although it might seem like a lot to keep in order, it will make your life way easier down the road. According to the IRS, keeping good records can help your business in seven aspects:
1. Monitoring your progress
Good records can show whether your business is improving, which items are selling, or what changes you need to make. This, overall, increases the likelihood of your business succeeding.
2. Preparing your financial statements
Your records will help you prepare accurate income statements and balance sheets. These can come into play when dealing with your bank or creditors and help you manage your business.
3. Identifying sources of income
Records will help you identify the sources of your income which will be used to separate business from non business receipts and taxable from nontaxable income.
4. Keeping track of your deductible expenses
By keeping good records, you eliminate the chances of forgetting expenses when you prepare your tax return.
5. Keeping track of your basis in property
Your basis is used to figure out the gain or loss on the sale, exchange, or other disposition of property, as well as deductions for depreciation, amortization, depletion, and casualty losses.
6. Preparing your tax returns
Your records are extremely important when preparing your tax returns. The records must support the income, expenses, and credits you report.
7. Supporting items reported on your tax returns
Lastly, keeping good records will immensely help if you are ever inspected by the IRS. When asked to explain the items reported, you will have your documents on file, and ready to go.
We know it seems like a tedious, ongoing project to keep track of every single one of these transactions, but it will really benefit you and your business in the long run. Like Van Gogh said, “Great things are done by a series of small things brought together.”
Want help keeping track of your receipts or tips on managing your business? Give us a call! We can be reached by phone at 618-281-9700 or 417-833-8811 or by email at info@obregonandassociates.com. We would love to set up a meeting and begin helping get everything on track for your business. Contact us to learn more.