The last thing most people think about when starting a business is doing taxes. But proper planning will make doing your taxes much easier – and keep the IRS happy!
Here are 3 simple tips for keeping proper records:
1. Whenever you buy anything for your business, keep the receipt!
Not only will this make record keeping a lot simpler, but if you are ever audited (having your tax return reviewed in detail by the IRS), you can prove your expenses, and save yourself money and headaches.
2. Record all your expenses and income as they happen.
As your business grows, you’ll have more and more activities to keep you busy. The last thing you’ll want to do each April 15 is to organize your records for the year. So, it’s a good idea to write down all your financial activities as they happen. You’ll find preparing your taxes will take much less time if you are organized.
3. Learn how to save money on your taxes.
As you learn about taxes, you’ll find that there are many deductions (expenses that reduce your income, and therefore your taxes) you can take that are not obvious. When using your home office, you may be able to deduct (at least partially) repairs you make around the house, utilities, your home’s value at the time you start your business, and more.
The more you know about taxes, and the more organized you are in keeping records, the more time and money you’ll save at the end of every year!
What happens if you don’t keep proper records?
Individuals with small businesses are the most likely to have their tax returns audited by the IRS. If you don’t have a receipt, you will likely lose the deduction and owe the IRS money.
And while an audit does not have to be feared, you should be prepared – the more organized your records, the easier it will be to prove your case.
There are several ways to keep track of all those records?
Alternative 1
If you don’t have one, get a file box and some folders at your local office supply store (these supplies are deductible, so keep your receipts!) and create a filing system for your business. Put all your receipts in the proper folders, and put them in a safe place.
Alternative 2
Another way to save yourself time is to record all of your business transactions – expenses and income – on a spreadsheet on your computer. Keep a column for income, advertising, supplies, etc. You don’t need to be a computer expert. But keeping accurate, organized records will help you save time when you fill out your taxes at the end of the year.
Take a picture of your receipts and then organize them into a folder on your computer for easy access. Be sure that your computer is routinely backed-up or you may lose all those document in the event of a hardware failure. Many computers come with cloud back-up in today’s environment. I have mine set-up to automatically back-up or sync my computer files. I even have a paid service that backs-up my computer. I want the extra insurance as I have experienced several hard-drive crashes over the years.
Alternative 3
Invest in an accounting application (app). There are several good accounting applications, some of them will let store a photo copy or PDF of the receipt on their server.
One the biggest pains of record keeping is keeping track of mileage when you use your personal vehicle. There are accounting apps and mileage tracking apps that will assist you with this daunting task. You can find free apps and paid apps. The free apps usually have restrictions on them.
Accounting apps will also give you snapshots of your business information that can assist you in making key decisions in making your business more profitable.
In Summary
Start immediately keeping your receipts and begin recording your receipts either manually, using a spreadsheet or a computer app.
Getting organized can help at tax time to reduce the stress and headache at tax time. You will also be better prepared to save money on taxes, by using these tools to give you a snapshot of business or your financial progress whenever you need it.
This will come in handy when you need to place ads, borrow money – or take a much needed and well-deserved vacation!
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If you’re not sure whether you have a simple tax return you can do yourself or you wonder about missing significant tax advantages or are concerned that you might be making mistakes, use the checklist below from the American Institute of Certified Public Accountants to help you decide whether you should hire a certified public accountant to help you prepare your tax return.
Everyone worries about taxes and looks for ways and means of reducing the tax burden. When, you have a small business of your own you must up date your knowledge of tax laws that pertain to “small businesses.” As a business owner you must understand clearly about accounting systems and tax planning. Sit down with your accountant and plan on ways of maintaining business expenses, filing receipts, planning on “tax saving” investments, and a strategy for running the business in the most beneficial way.