When tax season comes around, many people—including business owners—find themselves scrambling to produce their receipts, dig out income records, and provide the information needed to put together their taxes. Providing documentation is critical for minimizing the taxes you have to pay and protecting your business’s finances. If you do not have that documentation, you may find yourself at a loss—and, in a worst-case scenario, forced to put that data together from scratch.
With documentation and good record-keeping practices, on the other hand, you can pay your taxes accurately.
Why Does Documentation Matter?
When it comes to paying your taxes accurately and efficiently, documentation is critical.
1. Provide Comprehensive Source Documents
If you are audited by the IRS, having comprehensive source documents on hand can make a big difference. An IRS audit does not have to be stressful. When you know you have kept accurate records and can provide clear documentation of all your income, expenses, and other relevant financial information, you can confidently hand them over and wait for the outcome— reducing your overall stress. Accurate record-keeping will also ensure that there’s nothing to find as the IRS audits your business, which can prevent you from facing costly back taxes.
2. Make Better Business Decisions
An accurate look at your financial documents can help you make sound business decisions since you will understand where your dollars are coming from and where they’re going.
How do your business expenses look? Can you look over your financial records at the end of each year and clearly see where those expenses have come in and why they matter to your business? With those records, you can review your cash flow annually–or even quarterly–and make smarter overall business decisions.
3. File Reports with Ease
With good record-keeping, the information you need is at your fingertips. Instead of having to dig through files or transaction reports, you can easily put together the information you need, whether it’s an annual/quarterly report or specific tax-keeping information.
4. Make Happier Employees
Ultimately, good records make happier people across your company as a whole–employees and employers alike. With good records in place, your employees–and you!–will face less stress when the time comes to put together vital reports or manage taxes. Thanks to your record-keeping efforts, you won’t have to worry when you need to fill out that information–and that means you’ll be in a much better position, overall, to manage it.
Key Strategies for Record-Keeping
As you start the shift to better record-keeping efforts, make sure to use these strategies to improve your bookkeeping.
1. Make sure there is no transaction without a receipt.
The purpose of storing purchase invoices and receipts is to document expenses. You need to keep up with where your money is going and make your operations as transparent as possible. If you conduct a transaction, make sure you have a receipt for it! Keeping up with those receipts makes it much easier to tell exactly where your company is spending and which ones are qualified business expenses.
2. Keep in mind that a credit card statement is not a receipt.
A credit card statement is simply a statement of where money has been spent. What it doesn’t tell you is why. You need more information about your company’s spending: a date, dollar amount, specific vendor, and a notation that describes the transaction. Stopping at the gas station for snacks isn’t a business expense, in most cases. Stopping at the gas station and filling up the company car, on the other hand, is. Your credit card statement can’t tell the difference between those transactions, but a receipt can–and the difference is significant.
Having accurate information and correctly categorizing entries allows you to easily keep your bookkeeping up to date, even when things get chaotic for the company. You will need to keep up with items like:
- Rent
- Business meals
- Business mileage
- Specific office expenses
- Project expenses
Talk to an experienced accountant or tax preparation professional to get a better idea of how you should categorize your spending. Many types of spending may count as deductions, which you want to maximize as much as possible. By keeping your spending in the right category, you can better determine where those vital expenses and deductions are, making it much easier to manage your business costs come tax time.
3. Use apps and software to help keep your records organized.
There are countless websites, apps, and platforms designed to help keep up with your business expenses. The right ones for you may differ from the ones used for another company; however, several platforms come highly recommended by many business professionals.
- Shoeboxed: This app is designed to turn receipts into data. It gets the paper off your desk and allows you to easily track and report spending in several different areas of your life.
- Bench Accounting: Bench Accounting is a simple online bookkeeping site that keeps up with everything from bookkeeping to tax filing. It bills itself as an “all in one financial toolkit” that your business can count on.
- Gusto: Do you need modern payroll, benefits, and HR solutions? Gusto can help you achieve your goals and make it easier than ever to track expenses related to those key categories.
- Mile IQ: Do you need to track the miles you’re driving for work–or that your employees are driving company vehicles? Mile IQ makes it a snap, including stress-free logging in-app form that employees can easily carry with them.
Accurate bookkeeping throughout the year makes your life much easier come tax time. Do you need more assistance managing your taxes or keeping up with your spending? Contact TSP Family Office at (772) 257-7888 to learn more about how we can help you get ready for tax time and save money on one of the biggest expenses your business faces each year.
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