If you’re like many business owners, you have many records
you’re not sure you need to keep anymore. Keeping more documents
than necessary can be messy and confusing. On the other hand, not
keeping enough can lead to trouble should you be audited by the
IRS.
If you’re like many business owners, you have many records you’re not sure you need to keep anymore. Keeping more documents than necessary can be messy and confusing. On the other hand, not keeping enough can lead to trouble should you be audited by the IRS.
Every business owner needs to maintain adequate records to prepare his business tax return and to substantiate income and expenses in the event of an audit. Chances are you already have the heart of an efficient record-keeping system in place by using computer software to keep your company’s books. Using software should reduce your office clutter since many reports don’t really need to be printed out. They can be viewed on your computer screen whenever you need them. Remember to keep a backup copy of your books in a safe place, like your home, in case disaster strikes.
Of course, the IRS does require support for your deductible business expenses. Often this will be purchase invoices along with proof of payment. Some types of expenses, such as meals and entertainment, do require extra documentation. If space is particularly scarce, you may want to consider using electronic storage alternatives.
It’s also important to save records that document the source of your business receipts especially for receipts that shouldn’t be treated as income, such as loan proceeds. One technique the IRS uses in examinations is to obtain your bank statements and analyze the deposits. Properly documenting the source of each deposit will help ensure you don’t end up paying any more tax than necessary.
Please call us if you need some help figuring out what to save and what to throw out during your business spring cleaning.
Doug Herring is a CPA with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister and in Morgan Hill.
