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When you’re running a growing business, it’s tempting to overlook the matter of keeping receipts and other financial documents. But staying on top of your record keeping is essential for filing tax returns and being able to prove they’re accurate in the event of a tax audit.
What’s more, well-organised records can help you track the progress of your business and prepare accurate financial statements.
What constitutes a record? The short answer is, if you think it’s one, it probably is. Cash register tapes, bank deposit slips, receipt books and credit card slips all record important information. A 1099 miscellaneous-income form is the kind of document you’ll want to keep, as are your invoices.
Those records cut across several categories. Arranging them accordingly is a good first step in organising what will probably amount to a small mountain of records. By the way, don’t ditch your records after a year or two. The IRS advises businesses to keep records for up to seven years, or more in some cases.
Gross receipts. These reflect your business’ income, on which its taxes are based. Save documents that show the amounts and the sources of the income. Those run the gamut from cash register tapes to receipt books.
Purchases. These are the things you buy and resell to customers. They include raw materials or components that are included in finished products. Such purchases may be considered part of the cost of goods sold, and be eligible for a tax deduction.
Expenses. Expenses are the costs of running a business, from salaries to rent to travel, and most are tax deductible. In addition to records such as canceled checks and account statements, use petty cash slips or a petty cash log to record your small purchases.
Employment records. It’s important to keep complete records of the wages, benefits and tips paid to your employees, including amounts and dates. Keep the names, addresses and Social Security numbers of your employees, and their dates of employment. Have employee copies of W-2 Forms been returned to you as undeliverable? Keep em. And keep copies of employees’ income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V).
Business assets. Business assets such as computers and copy machines gradually wear out, and businesses can write off their costs over time. Be sure to keep records of the cost of the asset and the sales tax, as well as costs for delivery, setup, training and accessories. When assets are sold, record and keep a description of the item, the price and date of sale, and any expenses pertaining to the sale—such as brokerage fees or advertising costs.
Travel. Much of the cost of business travel is tax deductible, so keep records each time you make a payment—large or small—that involves a trip. Receipts for transportation, meals and lodging are a must. You should also keep a journal listing travel dates and destinations, the reasons for the travel
and a list of expenditures.
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