Small Business Record Keeping

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Small Business Record Keeping

• Record Keeping and Accounting Made Easy

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Hello Ron Cornish

• Background
• Education
• Career
• Indian Country
• SGU, TBIC, CCC, NAU, CAIED, ED, RE, EE, NDN

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Todays Agenda

• How to keep track of your business transactions.
• Business requirements of the IRS
• Filing of source documents
• Computer or manual bookkeeping?
• Financial Statements you may need

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BENEFITS OF KEEPING RECORDS

• Monitor the progress of you business
• Prepare Financial Statements
• Keep track of deductible expenses
• Prepare your tax returns
• Win IRS audits

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SIMPLE BOOKKEEPING

• The IRS does NOT require you to keep any special
  kinds of records.
• You must clearly show your income and expenses.

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Simple items for business record keeping

• A business checking account
• Income and expense journals
• Files for supporting documents
• An asset log

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IF YOU HIRE EMPLOYEES

• These records must be kept
• Payroll tax records
• Withholding records
• Employment tax returns

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BUSINESS CHECKBOOK

• One of the 1st things you do when setting up a
  business.
• Its the simplest record of your income and
  purchases
• Business finances must NOT to be mixed with
  personal accounts

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BENEFITS OF KEEPING A SEPARATE CHECKING ACCOUNT

• Much easier to keep track of business income and
  expenses.
• It will be useful when the IRS audits you
• Validates claim of being a business rather than a
  hobby.
• Helps establish status as an independent
  contractor vs being an employee.

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SETTING UP YOUR BANK ACCOUNT

• For depositing self-employment compensation and
  for paying expenses RELATED TO THE BUSINESS
• If a sole proprietorship, just open a separate
  personal checking account.

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PAYING YOURSELF

• Write a business check to yourself, then deposit
  it into your personal account.
• Known as a withdrawal or personal draw, it is
  for paying non-business and/or personal expenses.

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WHEN YOU WRITE CHECKS

• Keep excellent check records NOW!
• Write extra notations when and where needed for
  clarity later on.

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DONT WRITE CHECKS FOR CASH

• It doesnt clarify who and/or what the check was
  written for that would make the IRS very
  interested.
• If you must, staple the receipt directly to the
  check to help identify the purchase.

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MAKING DEPOSITS

• Enter into your journal
• Date and amount of deposit,
• A description of the source of the funds for
  example, a clients name.

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INCOME EXPENSE RECORDS

• Expense Journal
• Income Journal
• Automobile mileage and expense records

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Expense Journal

• It shows what you buy for your business
• Always include a category called Misc.
• Keep AUTO bills separate, as a different set of
  rules apply for autos

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Income Journal

• Shows how much money youre earning
• The source of each payment
• Other categories that could be of great use

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Automobile Mileage and Expense Records

• If you use a car or other vehicle for business
  purposes other than getting to and from work, you
  can deduct for the cost of gas and other
  expenses.
• Depreciation can also be claimed for the vehicle.
• Use a log book.

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Computer Software

• Quicken
• QuickBooks
• Peachtree
• MS Money
• DOME on computer
• Others

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Supporting Documents

• The IRS knows very well you can claim anything in
  your books, since you create them yourself.
• Thus the IRS requires you have documents to
  support your entries.
• You DONT have to file them with your return,
  just have them available if youre audited.

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Income Documents

• If audited, usually you have to furnish both
  business and personal bank statements.
• If bank deposits exceed stated revenue, IRS can
  assume underreported income and assess additional
  tax, interest, and penalties.

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Income Documents

• You must be able to prove sources of all your
  income.
• Keep docs showing source and amounts earned.
• Also keep Bank deposit slips, invoices, and all
  the 1099-MISC forms clients give you. Keep bank
  statements as well.

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Expense Documents

• In absence of supporting documents, IRS assumes
  personal expense item.
• At 25 bracket, a 100 disallowance will cost 25
  in federal taxes, plus penalties and interest
  plus SST goes up 12 too.
• Simple receipts, cancelled checks, etc. leave too
  much ambiguity, so combine docs into ironclad
  deduction.

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Entertainment, Meals, and Travel Expense Records

• History of abuse -- so IRS is careful
• Requires most records, and will be most
  scrutinized during an audit.

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Travel Expenses Deductions You Must Document

• The date the expense was incurred
• The amount
• The place
• The business purpose for the expense
• If entertainment and meals are involved, the
  business relationship of the people at the event.

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Filing Supporting Documents

• Use a separate file folder for each category.

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ASSET RECORDSneeded to verify

• When and how you acquired the asset
• The asset price
• Cost of any improvements
• Section 179 deduction taken
• Deductions taken for depreciation
• How you used the asset
• When and how you disposed of the asset
• Selling price
• Expenses of the sale

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Listed Property --Requires a usage log book

• Property that can easily be used for personal as
  well as business use.
• Examples Cars, boats, airplanes, and other
  vehicles
• Computers
• Cellular phones
• Any other property generally used for
  entertainment, recreation, or amusement.

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How Long to Keep Records

• Why? Audits (No.1 reason)
• Financing
• Keep tax records indefinitely, supporting docs
  for 6 years after tax return.
• Long term assets for three years the past
  depreciated life.

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If You Dont Have Proper Tax Records

• Cohen Rule (George M. Cohen)

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Accounting Methods and Tax Years

• The simplest and most used methods and tax years
  used by small businesses and sole proprietors
• Cash method
• Calendar tax year

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Methods of Accounting

• Cash accounting
• Accrual basis

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Tax Years

• Tax year versus Fiscal year

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Questions Answers
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Pack your bags, shuffle about, and let the
instructor know you are now ready to call it
quits for today.

• Do what it takes to be successful,
• Good luck to you all
• Ron Cornish [phone]