Record keeping is an important task for any small business. As a business owner, you likely know this process can be difficult to manage. Proper bookkeeping helps track business expenses. There are a number of different record keeping rules and requirements you must follow. However, when done correctly, record keeping helps your business run smoothly and remain compliant. Failure to accurately adhere to record keeping requirements could cost you fines and other penalties. Continue reading this post to learn the most important small business record keeping requirements you need to know.
As a business owner, you are required to hold onto important business documents and records. You need records of all business documents and financial data. These documents establish how you conduct business, distribute payroll, and earn revenues. You are also responsible for keeping business agreements between customers, vendors, staff, and suppliers. Keep executive records such as your dividend and annual reports, as well as actions made by your board of directors. These documents show you are legally and tax compliant. At the same time, they analyze that you are conducting business in an ethical manner. Record keeping requirements ensure you hold pertinent business records.
You must record transactions in a location that summarizes transactions. Create a journal for your business transactions. These detail all transactions listed on your documents and returns. When transactions are recurring or happen frequently, keep them listed in separate journals. On top of this, you need to create a ledger for your business. A ledger acts as a record of the totals from all of your journals. Your ledger can be organized into different categories based on account, business, or sector. Record keeping requirements ensure you keep these books well-maintained and updated in order to make certain you remain compliant with requirements.
Burden Of Proof
Small business bookkeeping practices ensure you comply with the burden of proof. When you file your return, you likely claim various deductions and exemptions. In order to legally receive these, you must provide sufficient proof for occurrences. The burden of proof is the standard for receiving deductions. Without a sufficient burden of proof, you are unable to qualify for any tax privileges. Most businesses are able to accurately display their burden of proof through well-maintain ledgers and through storing receipts. In order to remain compliant with record keeping requirements, you must have a sufficient burden of proof.
While record keeping requires you to keep records for almost all business expenses and transactions, there are a few that are unnecessary. Keeping these records only complicates your journals and ledgers. Because of this, many requirements forbid you from storing these unnecessary documents. If transactions are less than $75, you are not required to keep a printed receipt for the transaction. When expenses are from transportation costs, and traditional receipts cannot be obtained. Or if you are spending within a pre-purchased plan under a designated allowance. To remain compliant with record keeping requirements, ensure you avoid saving unnecessary records to avoid clustered books and double counting.
Disposing Of Records
There are specific requirements on how long you must hold stored records before they are disposed of. All of your past tax returns, financial records, and purchase receipts should be stored for a minimum of three years. Tax records regarding employees and hiring should be kept for atleast four years. If you recently deducted the cost of bad debts from your income, keep records of this for seven years. Moreover, if you have excluded any other income from your returns, keep records for six years. In order to maintain a compliant status, ensure you hold records for the necessary periods before disposal.
Proper Small business bookkeeping crucial to business preparation process for business owners. Unfortunately, it is an extremely complex process, filled with difficult to manage requirements. Specific documents must be held and stored. These documents must prove a reasonable burden of proof to the exemptions you have claimed. However, it is essential only to include pertinent records and avoid listing unnecessary documents. Transactions all must be recorded, frequently in multiple sources. You must wait specific periods before disposing of these records in order to avoid fines and penalties. To learn about the most important small business record keeping requirements you need to know to remain compliant with legal procedures.