The hardest distinction by far for many of my new business clients - and sometimes tax clients - is the difference between keeping records and having bookkeeping in place.
We do these things throughout the year, but never do we put a name to the task. And, if you ever have had the IRS or state agency audit you, you find out quickly what is or is not missing.
Keeping records means placing aside certain paperwork for proof. Whether it is a new dishwasher and you want to keep the record of purchase for warranty purposes, or the forms and filing documents with accompanying letters for the creation or dissolution of your business, these constitute “keeping records.”
If you have rental or property held for investment, record keeping is very important, as it could mean the difference between paying taxes at sale or conversion or not. Information other than the closing statements for this type of property would be loan origination and depreciation statements showing the amount that was written off every year. (Folks are amazed at this). As the IRS says, “allowed or allowable” and I add, “a deduction not taken is a deduction missed.”
Business with employees have more records to keep, but the idea is the same - back up for the who, when, what of employment of the individuals, plus federal and state tax filings. Even if you use an outside service or accountant to help with calculating payroll, it is still the responsibility of the employer to keep records. There is nothing worse than having an employer have a worker’s compensation or employment security audit and find out they never kept copies of anything.
When we begin to balance our checkbook, we are in fact doing bookkeeping. That is recording our income and expenses. Businesses go further by placing expenses in various categories to make preparing tax returns or loan papers a breeze (and less hair-pulling at tax time). If you keep a family budget, you, too, are doing what business people do.
Bookkeeping does not have to be difficult, just a record of invoices or receipts of income, your checkbook for the business, cash receipts and wage journal of some sort.
One last point to this is if you don’t know, ask. The IRS has publications on Keeping Business Records (Publication 583), Depreciation (Publication 946), and Travel, Entertainment and Car Expenses including mileage logs (Publication 463). These are free and available for download as a pdf on the Internal Revenue Service website.
Make the job of the auditor easier - and your stress level lower - by having your records and bookkeeping in order, and a favorable outcome can be achieved.
Karen S. Durda, EA, President of Century Accounting and Tax Services, Inc., has been in the profession since 1984. As an Enrolled Agent credentialed by the Treasury Department, she has the rights as afforded by Congress to represent individuals and businesses before tax authorities. Since May 2012, she has also had the distinction of being a Dave Ramsey Endorsed Local Provider, assisting in budgeting and financial peace for a four-county area and parts of Myrtle Beach.As a Qualified Business expert with the New Hanover County courts, she has experience and knowledge of various scopes of professions and industries, such as medical, health services, legal, construction, retail, real estate, auto sales and service, insurance and restaurant. Continuous tax law courses throughout the year keep her up-to-date on all tax rules, regulations and law changes, as well as business trends, to better serve her clients.
Christina Haley O'Neal - Sep 24, 2018
Johanna Cano - Sep 24, 2018
Cece Nunn - Sep 24, 2018
Hurricane Florence will go down in history as a disaster that tested the ability of a hurricane-prone region to cope. Even before Hurricane...
MADE: Marpac assembles the vast majority of its white noise machines in Wilmington....
Lydia Clopton opened Love, Lydia in July at 1502 South Third St. The location was previously a home that was remodeled into the bakery....