By Rhonda Johnson, CTEC, CPP
Do you have a separate checking account for your business?
Do you use a separate credit card for your business expenses?
Where are your receipts?
Do you know what your inventory is?
Are you making money?
Do you need to file estimated tax deposits?
Are you using your mileage log?
Should your spouse be on your payroll?
Would it help you to save money if you employed your children?
Now is the time to get ready for taxes, as you go. Each month, spend a little effort instead of hours of sorting and calculating, not to mention the stress this can cause.
Listed are just a few of the items that as a business owner you should be concerned about. Wouldn’t it feel good to reach December 31 and know that all you had to do was wait for your 1099s, W2s, and 1098s (interest documents) to arrive and your taxes could be completed?
What a taxpayer perceives as records and what the IRS interprets as records can be very different. When you signed up for the business you are in, you probably didn’t intend on learning bookkeeping. If you have figured out some way of keeping records for your business and that system is working for you, continue with it. Anything is better than nothing. Are you using your checkbook as a record of expenses, that’s okay. If you keep receipts filed by month or by the type of expense or all together in a shoebox, that’s okay, too. But to have receipts in the car, in a kitchen drawer, and at the bottom of your purse… well, that isn’t an indication of a responsible business owner, which is what the IRS expects.
Have you heard that you don’t need to keep receipts if the amount of the expense is less than $75? This is true, but only partially. You still need to record all information about the expense--how much it was, the date paid, and what the item was and to whom the payment was made. It is usually easier to keep the receipt.
Your appointment book or calendar is an important part of your tax materials and should be kept with your tax records year to year. Receipts, canceled checks, charge card slips, and your appointment book can all be used to prove the expenses you have incurred doing your business. If you haven’t been keeping all of these, don’t start worrying at this point, but make a change now! That way, if necessary, you would be able to show the IRS a pattern of your business expenses and documents supporting the expenditure.
All of this recordkeeping is not as difficult as it sounds. Documentation should include the date, the amount, place of the expense, business purpose, and the business relationship if the expense involves other people. The information that is shown on the receipt, canceled check, or other item does not have to be duplicated in a log, appointment book, or calendar. If you are prone to forgetting details, it’s best to put everything in writing as soon as possible. Lack of documentation is the main reason small business owners lose deductions when they get audited.
Recordkeeping and using designated checking accounts and credit cards for your business is a good practice for your business if questioned by the IRS. These practices prove the “intent to make a profit” business motive and does not give strength to the “it’s a hobby” theory.
If all of this recordkeeping is causing you to lose focus of why you are in business, which is to make money and provide a fabulous product to everyone you know and build a team, then possibly it is time to hire a part-time bookkeeper. When talking to the prospective bookkeeper ask her in what form she’ll want your information. Will she work from your bank statements including canceled checks and credit card statements or does she want a spreadsheet? Will she train you to do some of the work if you want to be more involved? Do you need a number of hours of work for her to do before she is willing to work with you? Does she prepare tax returns? Be sure of find someone you feel comfortable asking questions. Be sure they answer in a way you understand. Find someone who cares about you and your business success.
As we go into August, I challenge each of you to take a look at your business goals. Have you put your goals in writing? Do you affirm them each day? How many new recruits do you intend to have by September? Are you training your recruits so they can succeed in the business? Are you setting the example for your business that you would want others to duplicate? Maintaining your business goals and keeping good records are two of the largest steps in your journey to success!
Rhonda Johnson, CTEC, CPP
Managing Partner
Accountable Solutions
rhondajohnson@socal.rr.com
www.taxthegame.com
Rhonda Johnson, CTEC, CPP
Article provided by the Direct Selling Women's Alliance Copyright 2003
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