Small Business Week – Recordkeeping For Small Businesses
Small business owners should keep good records. This applies to all businesses, whether they have a couple dozen employees or just a few. Whether they install software or make soft-serve. Whether they cut hair or cut lawns. Keeping good records is an important part of running a successful business.
Here are some questions and answers to help business owners understand the ins and outs of good recordkeeping.
- Good records will help them:
- Monitor the progress of their business
- Prepare financial statements
- Identify income sources
- Keep track of expenses
- 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 kinds of records.
it is important to keep documentation to support the recordkeeping in case of an audit. Documents that should be kept include those supporting:
- Gross Receipts
- Travel, transportation, entertaiment, and gifts
How long a document should be kept depends on several factors. These factors include the action, expense and event recorded in the document. The IRS generally suggests taxpayers keep records for three years.
A good recordkeeping system includes a summary of all business transactions. These are usually kept in books called journals and ledgers, which business owners can buy at an office supply store. All requirements that apply to hard copy books and records also apply to electronic business 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.
Business owners should keep all records of employment taxes for at least four years.
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Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.