Business Records
Why should you keep records? Since I can’t answer that any better myself, let me quote IRS Pub 583, Starting a Business and Keeping Records. “Everyone in business must keep records. Good records will help you do the following:
•Monitor the Progress of Your Business
You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.
•Prepare Your Financial Statements
You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
Custom Bookkeeping:
- CUSTOM DESIGN
- TRAINING
- SUPPORT
- TAX UPDATES
- ANNUAL TAX PREPARATION
- COMPLEMENTARY E-FILING
New Offering
An income statement shows the income and expenses of the business for a given period of time
A balance sheet shows the assets, liabilities, and your equity in the business on a given date
Without adequate record keeping, the IRS can disclaim your deductions and assign greater income based on averages
The profit and loss statements help determine if you need to pay estimated income taxes. During a tax year a sole proprietor pays taxes on income and self-employment tax by making regular payments of estimated tax. Required estimated taxes are assessed a penalty for each month, or part of a month that they are not paid. To avoid the penalty, if you expect to owe tax of $1,000 or more when you file your return, you should make estimated tax payments. Since federal income tax is a pay-as-you-go tax, you must pay tax as you earn or receive income during the year. Good business records kept daily tell you where you stand and can save you from paying a tax penalty.
Good Bookkeeping
Good bookkeeping habits can also help ensure all your income is reported. The IRS has launched initiatives to identify unreported income. The IRS has at least two tools for detecting unreported income. One is document matching. The other tool is known as Unreported Income Discriminate Index Function (UI DIF). Document matching compares reported forms (1099s, W-2s, K-1s, etc.) to individual returns to determine if all income is included. With UI DIF the IRS is able to systemically identify returns at high risk for unreported income. The UI DIF score rates the probability of income being omitted from the return. If you are selected for audit based on suspected unreported income, you will need a record keeping system in place, to justify your position. Without good records you are at risk of the IRS imputing your income which can be substantially more than what was reported. So, keep those records, know where you stand, and avoid paying tax penalties.
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DELAWARE'S MIDDLETOWN ODESSA AND TOWNSEND AREA