Small
businesses are often times under staffed and the owners
are over worked. But that is no excuse to not keep good
records. Some small businesses don’t understand the "records" part
of their business to the point where they keep no records
at all.
Not
keeping good records or no records at all can cause several
fatalities in your life. For some record keeping is just
one of those task they don't want to deal with.
There
are several reasons to keep good records; they range from
not missing important tax deductions to preparing financial
statements.
They
are to:
1.
Keep track of deductible expenses
2. Prepare your tax returns
3. Support items reported on tax returns
4. Monitor the progress of your business
5. Identify source of receipts
6. Prepare your financial statements
>>>Keeping
tract of deductible expenses
Sometimes
the IRS in a tax audit may scrutinize your deductions.
Good record keeping could make the transaction easy and
swift.
>>>Identify
Your Source of Receipts
When
the IRS scrutinizes your business the first thing they
want to see are authentic and honest receipts. Keep them
to keep your business honest.
>>>Make
a profit
You
need to know how much you are spending on your business
to keep it running in order to know how much income you
need to have a profit. For example: "How much do I
need to sell my product for?" Always keep good records
of the costs of taking your product to market. You can
then avoid having a business that loses money each time
you sell a product.
>>>Calculate
your lowest net profit subject to tax
You
cannot deduct expenses that you approximate or estimate.
You must be able to prove (substantiate) your business
expenses with timely and accurate records to support the
amounts deducted to compute your net profit. Burden of
proof is on you if you are ever audited, and the proof
is in accurate and honest receipts.
>>>Borrow
money from a banking institution or other
commercial lender
These
lenders are going to check your credit and they will want
to see your projections to repay the loan, and they will
want you to substantiate the assets and sales you have
previously had.
>>>Separate
personal from business
Business relationships are sometimes subjected to scrutiny. To facilitate your
tax preparation and reporting, as well as your responses to any possible IRS
inquiries, it may be beneficial to record and store your documentation of any
transactions between related parties. An example of transactions between related
parties, i.e., a corporation and its sole shareholder, may be subject to special
scrutiny.
Lois Center-Shabazz is the founder
of MsFinancialSavvy.com and author of the 3-time award-winning
personal finance book, Let's Get Financial Savvy! ISBN #0971979502.
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