TAX TIP: GOOD RECORD KEEPING IS JUST GOOD BUSINESS

Recordkeeping is an important part of running a small business.  In fact, keeping good records helps business owners make sure their business stays successful.

Here are some things small business owners should remember about recordkeeping:

  • Good Records will help business owners:
  1. Monitor the progress of their business
  2. Prepare financial statements
  3. Identify income sources
  4. Keep track of expenses
  5. Prepare tax returns and support items reported on tax returns
  • Small business owners may choose any recordkeeping system that fits their business. They should choose one that clearly shows income and expenses.  Except in a few cases, the law does not require special kids of records.
  • How long an owner should keep a document depends on several factors. These factors include the action, expense and event recorded on the document.  The IRS generally suggests taxpayers keep records for three (3) years.
  • Tax Returns should be kept for at least three (3) years after the due date of the return. However, if the original return was filed later than the due date, including if you received an extension, the actual filing date is substituted for the due date.   **Important Note:  Shred all documents, do not throw away any tax return or W-2’s, they include data that can be used for future tax returns by thieves.
  • A good recordkeeping system includes a summary of all business transactions. Businesses usually record these transactions in books called journals and ledgers, which business owners can buy at an office supply store.  They may also decide to keep them electronically.  All requirements that apply to hard copy books and records also apply to electronic records.
  • The responsibility to validate information on tax returns is known as the burden of proof. Small business owners must be able to prove expenses to deduct them.  Detailed records provide the best assurance of a favorable outcome if you are ever audited, oral testimony alone is seldom enough to prove the deductions you claimed on your tax return – auditors want to see a paper trail of receipts, logs, etc.
  • If you own stock in a corporation, keep the purchase records for at least four (4) years AFTER the year you sell the stock. This data will be needed in order to prove the amount of profit (or loss) you had on the sale.
  • Stock and mutual fund statements where you reinvest dividends should be kept for four (4) years after final sale.
  • Keep records of home, investment, rental property or business property acquisitions and related capital improvements for at least four (4) years after the property is sold.
  • Business owners should keep all records of employment taxes for at least four (4) years.
  • Businesses that keep paper records should keep them in a secure location, preferably under lock and key, such as a desk drawer or a safe.

5 Accounting Mistakes To Avoid With Your Business

Accounting mistakes can really put a hold on your small business and put it on shaky ground. Mistakes are common, unfortunately they happen more often with new and young businesses. Edge Tax Accounting in Prescott would like to bring you these 5 accounting mistakes to...

Top Six Tips about the Home Office Deduction

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the...

HOW YOU CAN MAKE SURE YOUR DONATIONS ARE TAX DEDUCTIBLE

It’s that time of year when taxpayers are thinking about how they want to give back.  Many taxpayers will want to donate to a charity that means something to them.  The IRS has a tool that may help you make sure your donations are as beneficial as...

THERE ARE NO “QUICK FIXES” TO CLEAN UP YOUR CREDIT

If you are trying to clean up your credit, you will come across plenty of companies offering you an easy fix.  Any company promising instant results for a price is more than likely a scam.  There are companies out there that are tricking people into paying...