Keeping your business records in a filing system is just as important as any other aspect of your business.
So, what's the best way to keep good records? It doesn't have to be complicated. Use any recordkeeping system suited to your business that clearly and accurately shows your income and expenses.
Your tax records must support all the income, tax deductions, and credits you show on your tax return. Carefully track all of your income and where it comes from. It's important to separate your business and personal receipts, and your taxable and nontaxable income.
Be careful if you transfer some of your personal funds into your business account, essentially making a "loan" to the business. Keep complete records of that transaction so that you don't include the money in your taxable business income by mistake.
Expenses
Record your expenses when you pay or incur them, depending on your method of accounting.
It's easy to forget about some of last year's expenses when you're filling out your tax
return. Overlooking deductible expenses can cost you.
Assets
Your business assets are the property and equipment you own and use for your business.
Keep a complete and detailed record of your assets, showing when you acquired them, how
much you paid for them and how you use the assets in your business. This detailed record
will allow you to depreciate your assets properly and report the correct gain or loss
when you dispose of them.
Self-Employment Earnings
If you are self-employed, you must pay self-employment tax. This tax provides for your
Social Security benefits when you retire or are disabled. The amount of benefits you
receive depends on how much you earn and contribute to the Social Security system.
Car Expenses
It's important to get into the habit of recording your business mileage at the time
you actually use your car. Try keeping a logbook in the glove compartment and jotting
down the mileage at the beginning and end of each business-related trip. Record
parking fees and tolls, and save your insurance and repair receipts.
Payroll Taxes
If you have employees, you must keep all records dealing with Federal employment taxes
for at least four years after the tax is due or paid, whichever is later. Make sure
your records include your employer identification number, the confirmation number or
tax record from any electronic payments, copies of the tax returns you filed, and the
dates and amounts of all the employment tax deposits you have made.
Keep track of your employees' Social Security and Medicare (FICA) taxes and income tax withholding in the same way, by recording the date and amount of each paycheck, and the date and amount of the taxes you withheld.
You must also keep a record of the Federal unemployment tax (FUTA) you paid. Record the total amount you paid for each employee, and the amount you paid into the state unemployment fund.
Travel and Entertainment
Keep all business-related travel and entertainment receipts. Indicate the exact
business reason for these expenses.
See IRS Publication 15 Circular E, "Employer's Tax Guide," IRS Publication 463, "Travel, Entertainment, Gift, and Car Expenses," and IRS Publication 583, "Starting a Business and Keeping Records."
Information courtesy of the Internal Revenue Service.
