Small business owners are subject to the same kind of thorough record keeping as giant corporations. Don’t make the mistake of destroying small business records before you should. Here’s a guide for knowing what to keep and what you can safely toss.
Bookkeeping records comprise everything you use to keep track of sales, expenses, invoices and other financial transactions in your business. Whether you use a robust accounting software, a green ledger pad, credit card carbon paper or a shoebox, you need to keep these records.
Bookkeeping records include, but are not limited to:
- Payroll records, including evidence of garnishees, when applicable
- Petty cash receipts
- Credit memos
- Bank statements
- Cancelled checks (front and back)
These records can be in digital form, if you prefer to scan items. You can safely shred items that you have scanned and filed. Bear in mind that some banks don’t automatically provide statements and cancelled check information after a certain number of years. Be sure to download statements and accompanying documents on a monthly basis. Bookkeeping records are considerably easier to keep if you migrate to software such as Quickbooks, Money or Peachtree.
Expense receipts provide proof that business expenses were in fact business expenses, and not personal expenses. If you go to Staples to pick up copy paper, and decide to shop for school supplies on the same trip, be sure to pay for them separately, because the copy paper receipt needs to be saved for record keeping.
Expense receipts include anything your business spends money on to run the business, including:
- Company car fuel and maintenance receipts
- Utility bills
- Parking fees
- Office cleaning services
- Security system cost for your business location
- Deductible meals taken during the course of business
- Deductible travel expenses
Basically, if you spent company money, you should have a receipt to go along with it. Though some of these expenses may or may not be deductible, you should still keep the receipt. The IRS is not only interested in making sure you take the right amount of deductions. They also want to make sure you don’t spend business money on personal items. Your accountant will be able to advise you on which expenses are deductible.
Proof of Assets
Assets refer to larger items that a business may deduct on their tax return. These can include company vehicles, office machinery and equipment and furniture. Assets can be depreciated over time or at the time of purchase. Since these are physical items, they will naturally come to the end of their usable life, and you may dispose of them legally. However, to prove you actually owned the asset, it behooves you to retain proof of ownership and use, even after disposal of the asset, in the form of:
- Purchase receipt
- Photo of the asset being used by your business
- Donation receipt
- Waste disposal receipt
For a comprehensive overview of your tax recordkeeping practices and for tax related services for your business or non-profit, contact the professional accountants at Ernst Wintter & Associates.