By Jean Kruse / Guest Editorial
One thing many people give up when they become small business owners is the “luxury” of paying taxes only on April 15. You may have to make quarterly estimated federal and Iowa income tax payments. If you have employees, you may have monthly deadlines for tax payments, not to mention the increased recordkeeping required.
If you keep good records, you can eliminate the worry and complications of these filings. The key is to create a recordkeeping system that is consistent, organized and comprehensive.
Today, computerized accounting software makes sense for even the smallest businesses to record and reconcile transactions. If you have a very small, simple business, you can use an Excel spreadsheet to keep your financial records. Whether you use a manual or computerized system, though, your goal is to be able to document your business activity for tax purposes as well as develop a picture of how your business is doing at any given time: what is owed to you; how much you owe; your profit for a year or a month.
All funds passing through the business should be documented in your checkbook and logged into the general ledger, which serves as the master record of your business’s financial transactions. If you are audited by the taxing authorities, your financial records should be able to support each number on your tax return—this is not only possible, but very easy if you keep accurate records.
Even if you are a solo entrepreneur, you should maintain a dedicated bank account for all business transactions, keeping them separate from your personal or household expenses. This account is a master record of the financial history of your business. Deposit and enter all cash and check receipts into this business account and post all expenditures through it. This ensures that all incoming and outgoing funds associated with the business are properly documented. If you do not have a business name, open the bank account in your name as a business account.
A petty cash box can take care of advances for small day-to-day expenses such as parking or postage. However, you want to limit the number of employees who can disburse these funds and require signed receipts for any use of petty cash.
Make sure you maintain on your calendar all deadlines for filing returns and making payments on state and federal taxes. The IRS can provide additional pointers to help make your tax preparations less complicated. Downloadable forms, publications and other information are available at www.irs.gov. IRS publications that I recommend are Publication Numbers 583, 334, 535 and 587.
Another important part of recordkeeping is how long and in what form you should keep the financial records of your business. Some records must be kept forever; most must be kept for at least three years.
To get more details on this topic, you might consider attending the free SCORE workshop titled “Recordkeeping for Small Business” at the Marion Public Library from 6:30-8 p.m. April 3. I will be the speaker and look forward to meeting you there. You can register to attend this workshop at workshops@scorecr.org or by calling (319) 431-4574. For more information on this subject or any other subject or to get free local mentoring, go to our website, www.scorecr.org; click on “request a meeting” and ask for a SCORE counselor to assist you.
Jean Kruse is a SCORE counselor and SCORE Iowa district president. She operated her own CPA firm for 13 years and in 1988, joined RSM McGladrey, a national firm, where she provided accounting and tax services to small businesses.
