The Business Records You Need To Keep
Staying on the right side of the IRS isn’t just about paying your taxes. It’s about ensuring the financial health and success of your business. By law, businesses are required to retain certain records. These records hold the key to your business’ financial stability. Your accountant will sift through them to prepare your end-of-year financial documents, making sure your taxes are filed correctly and working to minimize the risk of audits or penalties.
Taking the time to keep your books up-to-date isn’t just a legal obligation, but a smart business move that can save you from unnecessary stress and complications down the road.
Types of records that need to be maintained
As previously stated, it is essential to keep a record of your business income and expenses. Professional accountants and CPAs will require these records as evidence of your business operations, and will use them to determine your tax liability.
To ensure a smooth process, it’s important to have the following readily available for your accountant:
- Income receipts to document receivables. This includes bank deposits, mobile and online payment records, cash register tapes, receipt books and invoices; all of which serve as proof of income.
- Purchases that show what you have bought and subsequently sold to customers. This would require keeping online records, check stubs, credit card receipts, invoices or other documents that show who you paid, and how much.
- Other expenses not related directly to purchases, such as rent, power, internet and telephone bills. It’s important to retain all of your documents, including petty cash slips for small cash payments.
- Additional expenses like business travel, client entertainment, gift purchases, or donations to charity.
- Assets that you’ve purchased and utilize for your business, such as computer equipment, machinery, vehicles, furniture, and more. For depreciation purposes, you should be able to demonstrate when and how you acquired the assets, the purchase price, the cost of any improvements, the purpose of the asset, and the amount received if it was sold.
- If you have employees, it is imperative that you maintain all records related to employment.
How long should you hold onto your records?
The length of time you need to preserve business records depends on the nature of the records. As a general guideline, it’s advisable to keep receipt of income and payables on hand for a period of 3 to 7 years.
While you may be tempted to hastily dispose of old documents, it is always wise to err on the side of caution. Your accountant can provide expert advice on which records can be safely discarded without compromising the integrity of your financial records. The truth is, you never know when you might need to reference these records again in the future.
Accounting software – the ultimate time, stress, and money saver
Transform your accounting process with state-of-the-art software that can save you time, eliminate stress, and boost your bottom line. Gone are the days where small business owners have to toil away over payroll, invoicing, tax returns, and other accounting tasks during endless nights and weekends. Here's how accounting software can make your business more efficient (and earn you praise from your accountant):
- Effortless tax returns: Accounting software can help simplify tax filing and payments, making it a breeze to settle what your business owes online. Your accountant can easily reconcile your bank statements with your financial data, reducing the risk of errors.
- Lightning-fast invoicing: With accounting software, you can swiftly generate and track invoices, ensuring your business is paid promptly each month.
- Compliance made easy: Effortlessly meet all IRS regulations and standards.
In addition to satisfying the IRS, there are numerous compelling reasons to maintain meticulous records. By diligently recording all your deductible expenses, you can maximize your financial benefits. Moreover, effective recordkeeping serves as a valuable tool to track the growth of your business and ensure you remain on the right path towards success.
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