GOOD RECORDS MAKE FOR A TIDY BUSINESS

     It's  time to review your business record keeping system.  There are certain key documents that are needed and required to support your business income and expense items.  Without these documents and a proper paper trail, you could be missing out on significant deductions and paying more in tax than is legally required.

     Your system or your books should be a summary of your business transactions and show your gross income, your deductions and your credits.  For small businesses, the business checkbook is the main source for income and expense information.  But supporting documents, such as sales slips, invoices, receipts, credit card payments, cancelled checks or other proofs of payment, should also be organized and kept in a safe place.

The IRS has a list of actual documents that should be kept and in what way:

     1. Employment Records ¨ Names, addresses and occupations of employees, their dates of employment, copies of employees' withholding allowance certificates (W-4s) and any W-2s issued.  Employers are required to keep any employee copies of Forms W-2 that were returned to them as undeliverable, and they must also9 keep records of payments made to employees by third parties because of sickness or injury.

     2. Travel Expenses and Logs ¨C Under an accountable plan, where you reimburse your employees for expenses and do not include these in their taxable pay, employees will also need to provide documentary evidence to support their expenses for away-from-home lodging and other expenditures of $75 or more.  These can be hard copies of receipts, paid bills, and cancelled checks.

     3. Assets ¨C Business owners must record when and how an asset, such as a computer or piece of equipment, was acquired; the purchase price and any subsequent improvements; how the asset was used, when it was first used in the business and the subsequent sales price or date it was disposed.  If the asset is used for both personal and business purposes, detailed records for each type of use must be kept.  An auto used for both purposes, for example, may be substantiated by recording mileage driven for business purposes, showing the date and reason for the business purpose.

     Generally, records need to be kept for as long as they are needed to support the item of income or expense on your tax return for the "statute of limitations," or IRS-designated time frame where you can amend your return or the IRS can assess additional tax.  That's three years for most tax returns but if income is underreported by 25% or more, this normal three year period extends to six years.  The time frame becomes indefinite, if fraud is committed.  The statute of limitations begins with the filing date of the return, so seven years is the suggested minimum retention period for most records.  Because, however, the IRS is not the only governing body that requires records be kept, the best recommendation is to securely maintain records for as long as the business is in operation.  When in doubt, document it and file it for safekeeping ¨C and speak with your tax and business advisor for more guidelines."

Article provided by Karl Herba,

Marcoin Business Services