Recordkeeping requirements for businesses
sites • December 2, 2020
Recordkeeping for Businesses
What records should your business keep, and how long should you keep them? There are several categories of records that are important to a business, some for internal purposes and some for tax returns and other government requirements. Let's take a look at these by category.
Tax records. First, consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records, so support the items of income and expense that you claim. That means you must be able to produce receipts, invoices, cancelled checks, or banking records supporting expense items. Similarly, you should keep sales slips, invoices, or bank records to support income items.
Accounting records. Most businesses have adequate accounting systems to capture routine transactions, but not for nonroutine transactions such as the purchase of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.
Travel and entertainment expenses. Good recordkeeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help insure that your records contain all the required information. Also, if you have employees who drive on company business, make sure they keep an auto log showing the miles driven for each trip.
IRS audits. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or seven years after the tax year). For that reason, you should keep most income tax records for seven years. The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.
Sales and Use Tax
State taxing athorities are focusing their audit activities by targeting small businesses sales and use tax. Keep invoices and reports showing your sales tax amounts and tie them to your sales and use tax filings. More importantly, keep records showing all your purchases and sales/use tax reporting. Include details behind any corporate credit card payments to defend the payment of sales and use taxes.
Corporate records. Every incorporated business needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also keep copies of all contracts and leases. Finally, don't forget current and terminated employee files, and records of employee pension or profit sharing plans. Most corporate and employee pension plan records should be kept indefinitely.
Computer recordkeeping
The IRS has established a series of rules and recommendations concerning how electronic records must be maintained. Generally, such records should contain the same information as paper records and should be kept for the same length of time.
It’s no news that many Houstonians dread the early months of the year due to tax filing and its numerous paperwork. However, tax filing isn’t as difficult as people make it seem. You can make filing your taxes an interesting activity by changing the mindset that it is a herculean task and doing what is necessary early enough. Although the year 2021 did not seem to take it easy on Taxpayers especially those filing tax return in Houston, or better put, residents of Texas. Asides the economic effect the pandemic had on Taxpayers, the winter snowstorms experienced in Houston and other parts of Texas affected the filing of returns in these areas. Thankfully, the IRS were sensitive to this situation and extended the deadline for those filing returns in Houston and Texas generally to June 17 th . Nevertheless, as a Taxpayer resident in Houston, here are some suggestions that can always come handy for filing your tax returns: 1. Start early by resisting the urge to procrastinate. Doing this will save you a whole lot of agitations. Always remind yourself that no matter how you run from it, you will still end up doing it, so you should start early enough so as not to lose your peace. Lol 2. Gather all the tax documents that are essential for your filing. The typical ones are Form W-2 (Statement of Wages), K-1s (income and deductions from partnerships, S corporations, trusts, estates), Form 1099 (Interests, dividends, royalties, etc.), Form 1099-R (Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc.), Form 1099-B (sales of securities), and Form 1095 (proof of health insurance). 3. Choose what works for you best between standard deductions or itemizing your deductions. Remember the standard deductions for the year 2020 is $12400 if you are a single filer and $24,800 for a couple filing jointly. However, if you feel itemizing your deductions is the best option for you, then ensure everything you need to prove your claim is ready and handy, e.g., receipts for deductions and tax credits which include education costs, childcare, medical expenses, etc. 4. Pick a suitable filing status. Depending on your status and preference, you can either file as a single, married filing jointly, or married filing separately. You can also file as a head of household if you paid more than half of the household expenses for the year; are unmarried, or have a qualifying child as a dependent. The last status option available is that of qualifying widow(er), you have the license to this status for about two years after the loss of a spouse if you do not remarry. 5. If you feel you have all it takes to file a tax return excellently, you should go ahead and do it. However, if you are not sure about yourself, it is advisable to seek the help of a Tax-Expert. 6. Lastly, do not let the excitement of delivering your return to the IRS make you set all receipts and tax forms ablaze. Create a space for them and keep them safe. They can save your skin in the near future. To sum up, tax filing isn’t a hard activity. I agree it can be complicated, but with a lot of focus on your part, it can end up being a yearly fun activity. In situation whereby you feel you need a second eye, it’s best you go for a professional Tax Preparer- an Enrolled Agent.
Wondering what bookkeeping services actually are? Check out our article to find out not only that, but how they can directly benefit your company as well. Did you know that 51% of small businesses that have been in business for 5 years or longer outsource their bookkeeping services? Most of the time, it is easier to outsource bookkeeping than it is to keep the process in-house. As businesses mature, they learn that there are plenty of benefits to outsourcing their bookkeeping tasks, such as increased confidentiality, saving money, and better law compliance. Are you thinking about using bookkeeping services for your business but aren't sure where to start? If so, keep reading to learn more about what bookkeeping services are, who they can help, and the benefits! What Are Bookkeeping Services? Bookkeeping is the process of recording all money that comes in and out of your business. To keep your business books up to date, you will need to record all transactions that your business completes. Bookkeeping is important for your business because it allows you to stick to a budget, helps you prepare to complete your taxes, and helps you stay organized. Here are some of the transactions that you will need to record in your business books: Payroll and payroll services Materials purchased Sales Bookkeeping services offer outsourced bookkeepers that can do your bookkeeping for you. This will save your business time, money, and ensure that your books are accurate at all times. Bookkeeping services are responsible for recording all transactions, using bookkeeping software, maintaining records, and creating reports. Who Needs Bookkeeping Services? Bookkeeping services are perfect for small and medium-sized businesses. They also are ideal for individual business owners or people with a complicated financial portfolio. Here are some signs that your business could use bookkeeping services: You don't have enough time Your books are behind You don't understand bookkeeping You have faced accounting fines in the past If any of those situations relate to your business, it could be a sign that outsourcing is the right move for you. What Are the Benefits of Bookkeeping Services? Now that you understand what bookkeeping is, you should also know the benefits of outsourcing your business's bookkeeping. Knowing the benefits will help you decide if you should outsource your bookkeeping or keep the job in-house. Keep reading to learn more about the benefits of bookkeeping services! Detailed Financial Records One of the best things about hiring bookkeeping services is that a bookkeeper will keep detailed records of your finances. Your books should always be up to date. This is helpful if you need to create a report or pull finances with little notice. Having detailed records will make completing taxes an easier process. If your business happens to be audited by the IRS , you will have easy access to your financial details. More Prepared for Tax Season Tax season is a stressful time of year for most business owners, but it won't be as bad if you hire bookkeeping services. When you have all the details of your business's cash flow, it is easier to predict earnings for the IRS. Once you have kept detailed books for your business over time, you start to notice trends. Trends will allow you to better predict how much money your business will owe when it is time to prepare your taxes . Law Compliance There are several different laws when it comes to business finances. These laws include federal, state, and local laws. Part of a bookkeeper's job is to make sure that your business stays in compliance with the law. Hiring a bookkeeper could save you money and time because there are fines for not complying with the law. Unbiased Financial Advice Another benefit of hiring bookkeeping services is that a good bookkeeper will be able to offer your business financial advice. Because an external bookkeeper doesn't report to your company, they can give you a clear and unbiased picture of where the company stands. An internal employee that is invested in the business may portray unrealistic finances. Lower Costs Hiring bookkeeping services has the potential to save your business money. When you hire a full-time bookkeeper, you will need to pay them a salary and benefits. With bookkeeping services, you will only need to pay for the amount of time that your business actually needs. If you are a small business, you may only need a bookkeeper for 20 hours per week. Also, if your business already has an accountant, hiring a bookkeeper could save your accountant time. Because all the financial data will be neatly organized, it won't take as long for your accountant to create financial reports. Accountants are more expensive than bookkeepers. Cutting back on the time required from your accountant could save your business money. Better Relationship With Banks Did you know that having a bookkeeper can improve your relationship with banks? When companies prove that they are good at keeping track of their cash flow, banks will have more trust in the business. This could be helpful if your business needs a loan. Also, if your business wants to look for new investors, being able to show them a detailed balance sheet could encourage them to work with you. Are You Ready to Sign up for Bookkeeping Services? Bookkeeping services is the process of hiring a bookkeeper to manage all your business's transactions. Hiring a bookkeeper can save your business money, increase compliance, and provide unbiased financial advice. Are you interested in signing up for bookkeeping services? If so, visit our services page to learn more about the financial services that we offer!
Finding the right expert to help you prepare for taxes requires knowing your options. Here is what to consider when hiring a tax preparation service. Across the United States, over 1.2 million tax preparation professionals serve the American people every tax year No one wants to get on the Internal Revenue Service's (IRS) wrong side by filing tax returns that aren't fully prepared. While that may be your desire, the professional you hire for that service may inadvertently end up getting you in trouble. Here is a deep dive into five fundamental things to think about when hiring a tax preparation service provider to help you avoid such a nightmare scenario. 1. Relevant Qualifications There are two groups of folks you can hire in the tax preparation world - Those with credentials and non-credentialed preparers. Who you choose will depend on your tax preparation goal. Certified Public Accountants (CPAs) are trained to handle complex account and tax duties. To become a CPA, one must have at least 150 hours of college accounting classes under their belt. Furthermore, one must pass a comprehensive CPA exam. Each state has its regulations governing CPAs operating within its borders. As such, you have high visibility into their track record. An Enrolled Agent (EA) is a tax preparer commissioned by the IRS. While an EA doesn't need an extensive educational background like a CPA, they still have to impress the IRS to serve you. A Non-Credentialed Income Tax Preparer is a seasonal or part-time tax preparer who does not require any qualification to operate beyond a GED. The IRS doesn't regulate non-credentialed tax preparers. Before you opt for the cheapest option, remember this - Only a CPA, an EA or a non-credentialed preparer holding a valid Preparer Tax Identification Number (PTIN) can represent you before the IRS. Therefore, if you know you'll need to contend with the IRS for auditing or other matters, your choices are limited. Furthermore, a non-credentialed tax preparer can't help you handle tax refunds without meeting special regulations in 20 states. Anticipate the full scope of your tax needs to determine what qualifications you need from a tax preparer if they are to serve you. 2. Applicable Experience A tax preparer should ideally know the ins and out of the process. For many people looking to hire such a professional, that expertise ranks high among the benefits of working with a tax preparer. It's, therefore, a no-brainer that before you hire a preparer, you need to vet their experience. Have they ever put together axes before? If so, which taxes? That might seem like a fundamental question, but it's a vital one. All taxes aren't the same, and every client comes with a different set of tax needs. The tax preparer you plan to work with needs to be familiar with tax needs similar to yours. For example, some preparers can handle 1040-EZ forms without batting an eyelid. Others are experts in Schedules C and/or E taxes. No matter how well-rounded a tax preparer is, they can't handle all types of taxes. If they tell you they can do that, run for the hills. Pair the proper qualifications with experience to gauge if a tax preparer can serve you satisfactorily. 3. Prod the Fee Structure The tax preparer you can hire will depend significantly on the budget you have for the services. Online tax preparation services often offer a free tier for prospective clients to road test the platform. You can leverage that to have a keener understanding of how much you are willing to pay for what the platform offers. If you opt for offline service providers, you'll need to ask the professional upfront how they charge. It's advisable to get several quotes so you can shop around. Comparing preparation fees helps you gauge the market average, so you get the most value for money. A crucial bit to checking out tax preparer fees is going beyond asking them how much they charge. You need to learn how they will determine their costs. What does this look like? How much a tax preparer will charge you depends on a few variables. The factors range from how complex your tax returns situation is to whether you need extra schedules. If your tax needs include unusual line items, that will influence the total cost. As with any other professional, there are some black hat tactics to avoid. When it comes to cost matters, you want to avoid tax preparers who want to charge you a percentage of your anticipated refund. Such professionals will have a flawed incentive egging them on to inappropriate deductions and credits. And you don't want to go down that road and unwittingly set yourself up against the IRS. 4. Will They Sign Your Returns? Another seemingly straightforward yet insidious issue is there the tax professional you hire will sign your returns. Only a tax preparer with a PTIN can do that. And even then, some professionals with that documentation still won't append their signature. Others will set lower rates to attract clients who don't realize their tax preparer won't sign their return until it's too late. Before signing on the dotted line, you should ask the service provider if this is part of their service agreement. Be wary of a tax preparer who won't sign the tax returns they prepare for you. 5. The Tax Preparer Should Be Available Off-Season Tax preparation is not a one-and-done affair meaning that even after you file your documentation with the IRS, you may still need assistance. Look out for what the tax professional offers on follow-on consultation after filing. If the IRS asks for more information from you post-tax season, you need to be a tax preparer who can still be on call. Don't Settle When Hiring a Tax Preparation Service Provider Tax preparation is critical to helping you comply with the law. Since this is an essential function, you need to contact a competent tax preparation service provider. Make a concerted effort to understand what makes a reliable tax preparer in order to know what to look for when hiring one. Getting the right kind of tax preparation skills is non-negotiable for compliance. Talk to us today for exemplary tax, consulting, and accounting services that will keep you and your business in good standing with the law.