If I had a nickel for each time I heard business owners and taxpayers say “taxes are so complicated” or “filing my taxes just takes too long,” I would not be writing this article.
I know, I know. Our parent’s accountants always told us that bookkeeping and accounting are way too complicated, and only they knew how to do it. So stop asking questions because you won’t understand the explanation.
Now let me be clear, accounting and taxes can be complicated, and in some cases, you are better off leaving it to a professional. After all, you didn’t open your business to become an accountant or a tax expert.
So who is this article for? It is for small business owners, entrepreneurs, and freelancers. If you are a business with several employees, consistent income, and possibly in growth mode, you should hire a pro to help you plan and grow.
Taxes and accounting for freelancers, entrepreneurs, and small businesses are not complicated, especially with tools like IOOGO Books, which helps you track your income, expenses, send invoices, get paid, and create simple financial reports in seconds. The complicated part of tax and accounting for small businesses is building the habit of paying attention to your finances every week.
Like any task, if you wait until the last minute to collect every receipt and record every mile driven, you will struggle and find it complicated. Building your reports for tax purposes is simply adding and subtracting. Think about school and homework, and the times you procrastinated and waited until the last minute to complete it. The most simple task can feel daunting when you let it pile up.
Your business has several essential needs, but nothing is more important than your customers and your finances. Without those things, you go out of business quickly.
As a founder, business owner, or freelancer, you must keep good records. Good records will help you do the following:
- Monitor the progress of your business
- Prepare your financial statements
- Identify sources of your income
- Keep track of your deductible expenses
- Prepare your tax returns
- Support items reported on your tax returns
Now that you undertand the importance of recordkeeping let’s talk about what records you should keep and how you should store them.
You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. The business you are in affects the type of records you need to keep for federal tax purposes.
The following are some of the types of records you should keep:
- Gross receipts
- Travel, Transportation, Entertainment, and Gift Expenses
- Employment taxes
Lastly, you need to know how long you should keep the record. Generally, you must keep your records that support an item of income, deduction, or credit shown on your tax return until the period of limitations for that tax return runs out.
The length of time you should keep a document depends on the action, expense, or event which the document records. Here are some recommendations:
- Keep records for three years from the date you filed your original return.
- Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.
When your records are no longer required for tax purposes, check to see if you need to keep them longer for other purposes before discarding them. For example, your insurance company or creditors may require you to keep them longer than the IRS requires.
As always, we recommend using tools to simplify your life and make tax and accounting for your business a painless process.
If you need a tool to get your books in order, try IOOGO Books, where no training is required. If your books are a mess, let one of our bookkeepers clean them for you and get you ready for tax time.