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October 10, 2024
Staying on top of taxes is crucial when you’re a business owner. Proper recordkeeping plays a huge role in making that manageable. Check out this list of recordkeeping best practices for businesses to find out which financial records you should maintain – and why.
Accurate reporting & compliance. Accurate record keeping for taxes is essential to maintain compliance. It can minimize the risk of mistakes and errors that could lead to costly penalties or trigger an audit. This is especially important for businesses that must track payroll, sales, and other tax-related items.
Claiming deductions and credits. Business owners can potentially save on taxes through a variety of credits and deductions. Comprehensive recordkeeping means you aren’t missing out on opportunities to reduce what you owe during tax filing season.
Efficient tax filing. You’re busy running a business. Record keeping as a best practice year-round simplifies small business and startup tax preparation. This can save you time and stress when tax season arrives.
You want to keep records that clearly show your business income and expenses. Your records should also include a summary of your business transactions. For federal tax purposes, the IRS recommends businesses retain the following records.
Include supporting documentation that shows amounts and sources.
Include supporting documentation that identifies the payee, amount paid, proof of payment, date incurred, and item description.
Include supporting documentation that identifies the payee, amount paid, proof of payment, date incurred, and item or service description.
Your business is likely to incur expenses related to travel, transportation, entertainment, and gifts. To claim tax deductions for expenses in this category, you must provide the proper documentation to substantiate them. This can include receipts, vouchers, and invoices.
Include supporting documentation that determines annual depreciation and gain or loss for assets sold.
The IRS requires businesses to keep certain employment tax records, and requires that your documentation show the following information:
How long you keep a record depends on what kind of documentation it is. Here are some general guidelines.
You should also keep business records for non-tax purposes – for example, documentation related to insurance policies. Check with each entity to determine how long you should keep certain records.
The method you use to retain the documentation outlined in this article is totally up to you. Many businesses use accounting software or some type of electronic program for bookkeeping for startups and small businesses. Just make sure your system captures a summary of your business transactions, gross income, deductions, and credits.
Keep in mind, this list of recordkeeping best practices for businesses is not exhaustive. Questions about recordkeeping for your startup or small business? Reach out to your Escalon tax professional for help.
If you’re ready to spend more time growing your business, outsource your tax needs to Escalon. We offer tailored tax solutions to businesses of all sizes. Our team can work with you year-round to optimize your tax strategy so you can focus on what matters most. Contact us today.
Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.
Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.
Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.
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