Staying on the right side of the Inland Revenue Service (IRS) isn’t just about paying your taxes. It’s a legal requirement that you keep certain records for your business, and they’re essential for your accountant. They need proof when they’re working out all your end-of-year financial documentation.
That’s why it’s important to learn good recordkeeping skills, so that you always have any necessary documentation on hand when you need it. If you put a little time and effort into keeping your business’s books up to date and honestly entered, you’ll save yourself a lot of stress down the road.
The best way to keep all your records up to date is by using good accounting software.
Business Records You Need to Keep
You need to hold on to anything that’s related to your income and expenses. These are the records your accountant is going to ask for as proof of your business operations, because that’s what the IRS and uses to decide how much to tax you.
When it comes to tax season, you’ll work through the documentation with your accountant, but to make the process run efficiently, you need to have the following on hand:
- Income receipts to document income your business receives. Things like bank deposits, mobile and online payment records, cash register tapes, receipt books and invoices are all examples of proof of income
- Purchases showing what you’ve bought and then resold to customers. You need to keep online records, check butts, credit card receipts, invoices or other documents that show who you paid, and how much
- Other costs not related directly to purchases. They include things like rent, power, internet and telephone. You need to keep all documents including petty cash slips for small cash payments
- Other expenses such as travel for your business, entertaining clients, purchasing gifts or donations to charity
- Assets you bought and use for your business, like computer equipment, machinery, vehicles, furniture etc. For depreciation purposes, you need to be able to show when and how you purchased the assets, the purchase price, the cost of any improvements you’ve made, what the asset is used for and how much you got for it if you’ve sold
- If you hire, you need to keep all records relating to employment.
The length of time you need to keep business records really depends on what the records are. There are different periods of limitations for different tax records, but in general terms you should keep business records between three to seven years.
Your accountant will help you determine which records you can discard, but generally speaking it’s not a good idea to get rid of anything in a hurry. You may need them for reasons unrelated to the IRS, like your insurance company.
Accounting Software: Why you need it.
Good accounting software will save you a huge amount of time, stress and money. It used to be that small business owners toiled over their payroll, invoicing, tax returns and other accounting tasks during long nights and weekends.
If you have accounting software that does it all for you, you’re eliminating the need to sweat over records for hours on end, and your accountant will definitely thank you for it. Among the many benefits are:
- Easier to process your tax return. Software your accountant uses makes tax filing and payment easier by using the right software to file and pay what your business owes online. You’ll be able to reconcile your bank statements to accounting data, meaning less chance of errors
- Faster invoicing and checking un-invoiced or late payer’s
- Complying with any regulations and standards.
If you’d rather work more efficiently, get paid faster, and comply with a host of regulations, including staying on the right side of the IRS, you’ll want to look into automating these tasks with accounting software. There are lots of review websites that rank accounting software products.
Quite apart from keeping the IRS happy, there are other good reasons to be diligent in your recordkeeping, such as making sure you record all your deductible expenses and good recordkeeping helps you monitor the progress of your business to ensure you’re staying on track.
If you ever need financial help with your business, Diamond’s Business Service’s team is here for you. Contact a representative with any questions you have.