Published on January 27, 2014
Record keeping for your business Essential things you need to know
finding all the necessary paperwork,like receipts, purchase dates, and mileage expenses
finding all the necessary paperwork,like receipts, purchase dates, and mileage expenses May be one of the most dreaded parts of preparing your taxes.
What records do you need to keep? and how long should they be kept?
You should retain any pertinent information that is documented on your tax return.
You should retain any pertinent information that is documented on your tax return. For example if you claim mileage, you should always maintain mileage records.
If you depreciate items, you must retain all records during the depreciation period - which can range from 3 to 39 years.
If you depreciate items, you must retain all records during the depreciation period - which can range from 3 to 39 years. Most other documents need to be kept for 3 years from the due date of the tax return.
Main items that need detailed records
Car Expenses You should always keep track of your mileage. Start today, if you are not already doing so, and write down your business mileage on a daily basis.
You can deduct any business meetings, deliveries, or any other work-related mileage.
Standard Mileage Rate This is the easier of the two methods to figure car expenses.
Standard Mileage Rate This is the easier of the two methods to figure car expenses. Since you are allowed a standard rate that includes gas, depreciation, maintenance and repairs, lease payments, oil, insurance and vehicle registration fees, you need to maintain fewer records.
You will need to keep track of: •Daily mileage for business use •Total mileage for year •Parking and Toll Road Expenses •Date you put the car into service For more on what defines business use go here.
Actual Expense Method This method is generally more beneficial if you have high maintenance on your vehicle or have less mileage.
Actual Expense Method This method is generally more beneficial if you have high maintenance on your vehicle or have less mileage. If you use your car for business and personal reasons, you must also figure out the business percentage.
For example, If you traveled 15,000 total miles during the year, and 5,000 miles were for business, your business usage is 33%
You can then subtract 33% of your car insurance, lease payments, maintenance, etc. to come up with the amount you can deduct as a business expense.
You should keep detailed records of: •Daily mileage for business use. •Total mileage for year. •Gas receipts. •Maintenance and repair costs and receipts.
You should keep detailed records of: •Lease or car payments. •Vehicle registration fee. •Vehicle insurance . •Date you put the car into service for business use.
Almost all equipment used in business that is expected to last ONE YEAR OR MORE can be depreciated. Many things such as furniture, computers, and even landscaping can be depreciated.
Records you need to maintain for depreciation are:
Records you need to maintain for depreciation are: •Model of vehicle, or description of equipment/ purchase. •Date item was placed into service for business use. •Cost Basis, which is purchase price, plus shipping and installation costs. •Any improvements or additions to original cost basis. Depreciation continues for 3 to 39 years, depending on the item.
Remember, if you take the equipment out of service or sell it, depreciation on that item stops, and you should keep a record of the sale date or date it was taken out of service.
The IRS plainly states that: “…you may choose any recordkeeping system suited to your business that clearly shows your income and expenses.”
The IRS plainly states that: “…you may choose any recordkeeping system suited to your business that clearly shows your income and expenses.” All sorts of recordkeeping systems - from paper notebooks to accounting software are acceptable
Written Records A written record can consist of an account book, log, statement of expense, trip sheet, or similar record. Many people swear by a written logbook, especially for mileage expenses.
Written Records Advantages: It is easy to keep in the car with you, always available, low cost, and does not depend on the availability of an Internet connection.
Written Records Disadvantages: However, you must do calculations and sorting by hand, which may be time consuming in the long run. There is no backup in case your logbook gets damaged, lost, or destroyed.
Computer programs Programs like Excel can perform many functions to help you maintain accurate records of expenses, and you can easily add additional data or fields, if necessary. You should always do a frequent backup of your files to ensure that important material will not get lost.
Quicken® and QuickBooks® Are two well-known programs that let you integrate bank accounts into your expense category, and allow you to customize reports, and sort them according to date and category.
Mobile Apps There are a variety of mobile apps for keeping track of business car expenses. MileTracker is a popular option for iPhone users and Mileage Tracker is a popular option for Android users.
Remember The fanciest record keeping system in the world will not work unless you enter the data.
Remember The fanciest record keeping system in the world will not work unless you enter the data. It is best to record the information about your purchases and expenditures soon after they are acquired.
In the words of the IRS “…well-organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination, or to prepare a response if you receive an IRS notice.”
Remember A minute of organization now, will save you time down the road.
To learn how to simplify the process of running your business
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