Staying on the right side of the Internal Revenue Service isn’t just about paying your taxes. It’s a legal requirement that you keep certain business records.
Good recordkeeping also helps you monitor the progress of your business to ensure you’re staying on track. And these records are essential for your accountant when they’re working on your end-of-year financial documentation.
If you put a little time and effort into keeping your business’ books up to date and honestly entered, you’ll save yourself a lot of stress down the road.
Business records you need to keep
You need to hold on to anything related to your income and expenses.
These are the records your accountant will ask for as proof of your business operations because the IRS uses them to decide how much to tax you.
When it comes to tax season, you’ll work through the documentation with your accountant. But to make the process run efficiently, you need to have the following on hand:
- Income receipts to document income your business receives. Things like bank deposits, mobile and online payment records, cash register tapes, receipt books and invoices are all proof of income.
- Purchases showing what you’ve bought and resold to customers. You need to keep online records, check stubs, credit card receipts, invoices and other documents that show who and how much you paid.
- Other costs not related directly to purchases, including rent, power, internet and phone. You need to keep all documents, including petty cash slips for small cash payments.
- Other expenses like travel for your business, entertaining clients, purchasing gifts or donations to charity.
- Assets you bought and use for your business, like computer equipment, machinery, vehicles and furniture. For depreciation purposes, you need to be able to show when and how you purchased the assets, the purchase price, the cost of any improvements you’ve made, what the asset is used for and how much you got for it if you sold it.
- If you hire employees, you need to keep all records relating to employment.
The amount of time you need to keep business records depends on the documents. But typically, you should keep business records between three and seven years.
Your accountant will help you determine which records you can discard. As a rule, don’t get rid of anything in a hurry. You might need documents for other reasons, like your insurance company.
Accounting software–why you need it
The best way to keep all your records up to date is by using good accounting software. It will save you time, stress and money.
Small business owners used to toil over payroll, invoicing, tax returns and other accounting tasks during long nights and weekends.
If you have accounting software that does it all for you, you don’t have to sweat over these tasks for hours. And your accountant will thank you for it too!
Some of the benefits include:
- It’s easier to process your tax return. You’ll also be able to reconcile your bank statements to accounting data, which means there’s less chance of errors.
- You can invoice faster and check for un-invoiced or late payers.
- It helps you comply with regulations and standards.
You can automate many of these tasks with accounting software. When looking for the right accounting software product for your business, make sure to research reviews.