Small business owners should keep these documents for Income Taxes
Arnold Towle Blog #4 January 27, 2020
Keeping good records make sense especially at tax time.
Having these documents, and the handy data in them, maximizes deductions and
will protect your business in the case of a possible IRS audit.
Are you just starting your business, or you’re an experienced small business owner,
Here is a checklist to make sure you’re protecting yourself and your company.
How long should you keep receipts?
1. Bank Statements (keep for three years)
small business documents credit cards
Bank statements prove that your business is, in fact, generating revenue.
Most banks give you access to monthly and yearly bank statements online.
Keep the monthly statements handy until you receive your year-end report.
Then, securely shred and recycle the monthly statements or
delete them from your digital files.
If you’re still receiving paper statements, make sure you get those digitized and
stored in the cloud. Or better yet, go ahead and sign up for digital statements.
2. Payable and Receivable invoices (keep for seven years)
Hold on to invoices that you send for payment or ones that vendors, contractors, and
suppliers send to you for goods and services rendered.
In the event you are audited the IRS pays attenion to Cash and Account Receivable Invoices
because they prove income. While Payables invoices serve as expense documents
thus the Profit and Loss Statement is estabished.
Here are some examples of invoices small business owners should keep:
An invoice from the manufacturer you purchase office supplies from
Your invoice for your internet provider
Your monthly invoice from your packaging provider
An invoice you sent to a client who made an order over the phone instead of
through your site
Include a description and make it clear the invoice was for a business expense.
3. Home office expenses (keep for three years)
small business documents for taxes
One of the best things about owning your own business is the option to work from home.
If you do work from home and have a designated space you use to work, you can make deductions
based on that square footage.
If you’re curious if your home office meets the IRS regular use test,
you can check it against their standards here.
The major advantage of a home office is the large range of deductions you can claim
because of it.
Hold onto your utility, internet, home insurance, second phone line,
and property tax bills. Little or sometimes all, of these bills could also be
deducted from the taxes you owe.
4. Office supply expenses (keep for three years)
In addition to your home office expenses, you can also deduct the supplies you use to
furnish your office.(Office Furniture, Fair market value of your computer
when your business began
Did you buy a new computer, printer, and desk to help run your new e-commerce store or
photography business? That’s deductible. Just be sure to keep the receipts.
5. Vehicle and mileage expenses (keep for three years)
Even if you’re conducting most of your business from home, the occasional
use of your personal vehicle for business activity can be deducted.
This is known as a “combination personal/business-use asset.”
Whether you’re meeting with a graphic designer at a coffee shop or picking up supplies
from your local crafts shop, it’s important to track those trips.
Track your miles traveled using a notebook in your car or download one
of the free mileage tracking apps out there.
You should also hold onto bills for routine maintenance such as o
il changes, tire rotations, or other major automobile repairs.
To stay on the more cautious side, always ask for itemized receipts that break down
exactly what services and parts were included.
6. Advertising expenses (keep for three years)
The good thing about marketing and advertising is that they’re deductible expenses.
If you’re paying a monthly fee for CRM and marketing automation, for instance, you can deduct that. If you’re paying someone to manage your AdWords, that’s deductible too. You could also deduct the expense of running your own PPC ads.
Another convenient thing about digital advertising expenses is that almost all of them
give you digital eReceipts. eReceipts are extremely easy to keep track of. S
imply create a “Receipt” folder in your email program, and drag and drop them in there as
soon as you receive them.
I should note that eReceipts and other digital forms of receipts are always accepted
by the IRS. They’ve been accepting them since 1995.
7. Monthly cash expense book. record all cash receipts not recorded in your accounting
software to maximize your tax deductions
8. Tax returns (keep for at least three years)
Your accountant will likely want to reference last year’s return for this year’s filing.
The IRS could also ask for them if you’re audited.
Many tax services and software give you the option to download a PDF of your returns
so you can store them digitally. As I’ve said above, always take advantage of going digital.
I’d also like to note that it never, ever hurts to hire an accountant.
Their job is to know the updated tax codes, and they can ensure that your
business stays compliant. Yes, TurboTax Business is an awesome tool,
but it never hurts to have a tax professional look over and have a review of your records and
Year end Financial Statements just before you file your year end Tax Returns.
If you’re self-employed and have a home office, look into the home office deduction to
see whether you can deduct some of the costs of maintaining your home and save money
on your federal taxes. Just make sure your home office meets IRS requirements and
keep careful records to substantiate your deduction.
A senior Tax PRO specialist with A+ Tax Services Florida, Arnold Towle is a seasoned
Tax person with more than 32 years in the tax industry. He has worked as a tax analyst,
Controller and tax accountant. He has accounting degrees and certifications
from Florida Atlantic University and he is able to practice AFSP before the IRS.
You can find him on LinkedIn. Or you can call him for free at 1-305-274-3316
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