Thinking of delaying your business tax planning? Here are two words of advice: don’t delay! Good tax planning should take place all year long to ensure accurate and effective tax preparation, a more pleasant and stress-free experience and a more positive financial outcome.
Why is it Important to Keep Good Records?
Financial record keeping is vital to the health and progress of every business. It allows a business owner to:
- Monitor the health and progress of a business. It really can mean the difference between success and failure, identifying strengths and weaknesses and opportunities to improve.
- Prepare accurate (required) financial statements, including the essential “big three” reports known as the profit and loss (income) statement, balance sheet, and cash flow statement. These three are necessary in the business’ relationships with banks, creditors and investors.
- Plan to meet financial commitments and get loans.
- Keep track of sources of income, receipts and deductible expenses—these are critical for tax purposes.
- Prepare tax returns with required supporting documentation. Keeping good records helps a business maximize expenses and reduce tax obligations, as well as to pay taxes accurately.
What Kind of Records Should You Keep?
Good tax planning relies on good records and supporting documentation.
- Gross receipts are the income that each business receives. Documentation should identify the source of income and include such things as invoices, cash register tapes, bank deposit slips, and credit card charge slips.
- Purchases and other expense transactions including the documentation of paid invoices, account statements, sales slips and check records.
- Inventory records.
- Travel, transportation, entertainment and gift expenses.
- Assets. These records reflect the property owned by the business, including the purchase date, purchase price, the cost of any asset improvements and deductions taken for depreciation.
How Long Should Records be Kept?
For tax planning purposes, the answer is “as long as the records are needed to fulfill requirements of the tax code.” Employee records should be kept for seven years. If taxes are owed, keep those records for three years. If any asset property is disposed of, keep those property records until the statute of limitations expires for the year in which the property is disposed. Keep income records for at least six years. A professional tax advisor will help develop a specific records retention policy for your records to keep you on the safe side of the tax law.
Some Record Keeping Suggestions
To get great results in your tax planning, use these record keeping suggestions:
- Work closely with qualified tax professionals that you can count on.
- Utilize a good accounting software system.
- Keep accurate source documents.
Get Expert Tax Planning and Preparation Assistance
Contact Doerhoff & Associates CPA, based in Jefferson City, MO for professional accounting and tax preparation assistance that will help you achieve the business success you are striving for. Reliable and comprehensive accounting services planned with you in mind.