When you run your own business, weather it may be big or small, it is extremely important to document all of the businesses income and expenses. This may seem obvious, but through my own experiences as a tax preparer I have found that many people with their own small business do not do this. It is not always necessary to hire an expensive CPA to do your finances for you. In fact it can be relatively easy to do it yourself.
A lot of people think that because all of their income is paid in cash by clients that they know and trust that it isn’t necessary for them to keep track. For example, if you are someone who babysits children for the same clients every week with a normal rate that they will pay you 500 dollars every other week in cash. You may think you don’t need to give receipts or necessarily document the payments. This is incorrect. The IRS automatically pays more attention to people who are filing self-employed taxes than those who file with W-2 income. On top of that, people with small amounts of self-employed income can be at even bigger risk of audit because they are usually getting a refund at tax time instead of paying in. Therefore, if you do not keep track of your business income and expenses with proper documentation and the IRS decides to audit you, you can be in big trouble. Bookkeeper Business Launch will solve the issue of earnings per hour of the person. The establishing of the business will require less cost and the results will be effective. Proper assessment can be there of the income and expenses involved in the business of the person.
Always give receipts, and always pay employees by check. The reason you always give receipts and keep a copy for yourself is obvious, proof of the income coming in. This proves to the IRS that the level of income you claimed on your tax return is correct. The reason that you always pay employees with checks and not cash works the same way. If you plan to 1099 that employee at the end of the year and to write off your labor expenses, you now have proof. This protects you from former employees trying to file taxes and not claim what you paid them as income. If you only paid that employee in cash and not by check, you now have no way to prove they made that income, this prevents you from issuing them a 1099 and writing off their wages on your tax return. The same rule applies to business expenses. Keep receipts for everything that you purchase for your business. If you write off expenses on your tax return and do not have the proper documentation to prove it, you will be left with no defense against an IRS audit. There are many things business owners can write off come tax time, fuel, office supplies, depreciation, and if you have a home office you can even write off a portion of your mortgage interest and utilities. But without receipts you run a great risk of having to pay back the IRS for those expenses plus penalties.
When it comes to keeping your business finances in order, there are a few fairly simple and painless ways to do so. Some people like to keep track by hand with a business log, but as I’ve found, the simplest way to organize your business is with a computer, using programs like excel or any other bookkeeping software. These programs make it easy for you to simply just input how much money is coming in and from where, and how much money is going out and to where. Now of course not everyone is great with computers, but there is software out there that makes it very easy on you. If you keep your receipts and check stubs organized, you can enter all of that data into your excel or whatever program you chose to use, and it will only take about an hour a month. Once all the information is inputted, it is very easy to keep track of what expenses are able to be written off come tax time. This will prevent you from all of the stresses that come from filing taxes and allow you to prepare in the event that you may owe on your tax return.
Bookkeeping for your small business can be stressful. Using the information above can help keep you relaxed knowing that all your finances are in order. This will keep you prepared for filing your year-end taxes, and keep you constantly informed on what’s going on with your business. Always keep in mind too that you can find people to do your bookkeeping for you for a fair price. But no matter what, make sure you are always keeping receipts, and paying employees by check.