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Small Business Record Keeping Record Keeping and Accounting Made Easy Hello – Ron Cornish Background Education Career Indian Country SGU, TBIC, CCC, NAU, CAIED, ED, RE, EE, NDN Today’s Agenda How to keep track of your business transactions. Business requirements of the IRS

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small business record keeping

Small Business Record Keeping

Record Keeping and Accounting Made Easy

hello ron cornish
Hello – Ron Cornish
  • Background
    • Education
    • Career
    • Indian Country
today s agenda
Today’s 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
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
simple bookkeeping
  • The IRS does NOT require you to keep any special kinds of records.
  • You must clearly show your income and expenses.
simple items for business record keeping
Simple items for business record keeping
  • A business checking account
  • Income and expense journals
  • Files for supporting documents
  • An asset log
if you hire employees

These records must be kept:

Payroll tax records

Withholding records

Employment tax returns

business checkbook
  • One of the 1st things you do when setting up a business.
  • It’s the simplest record of your income and purchases
  • Business finances must NOT to be mixed with personal accounts
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.
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.
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.
when you write checks
  • Keep excellent check records NOW!
  • Write extra notations when and where needed – for clarity later on.
don t write checks for cash
  • It doesn’t 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.
making deposits
  • Enter into your journal:
  • Date and amount of deposit,
  • A description of the source of the funds – for example, a client’s name.
income expense records
  • Expense Journal
  • Income Journal
  • Automobile mileage and expense records
expense journal
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
income journal
Income Journal
  • Shows how much money you’re earning
  • The source of each payment
  • Other categories that could be of great use
automobile mileage and expense records
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.
computer software
Computer Software
  • Quicken
  • QuickBooks
  • Peachtree
  • MS Money
  • DOME on computer
  • Others
supporting documents
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 DON’T have to file them with your return, just have them available if you’re audited.
income documents
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.
income documents22
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.
expense documents
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.
entertainment meals and travel expense records
Entertainment, Meals, and Travel Expense Records
  • History of abuse -- so IRS is careful
  • Requires most records, and will be most scrutinized during an audit.
travel expenses deductions you must document
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.
filing supporting documents
Filing Supporting Documents
  • Use a separate file folder for each category.
asset records needed to verify
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
listed property requires a usage log book
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.
how long to keep records
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.
if you don t have proper tax records
If You Don’t Have Proper Tax Records
  • Cohen Rule (George M. Cohen)
accounting methods and tax years
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
methods of accounting
Methods of Accounting
  • Cash accounting
  • Accrual basis
tax years
Tax Years
  • Tax year versus Fiscal year
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 (928) 774-0036