You wouldn’t believe how many tax issues take place every year because of bookkeeping errors. Sometimes, the errors are honest mistakes. But other times, people purposely don’t keep accurate records to avoid paying taxes. This is illegal, of course, and can result in hefty penalties.
To avoid getting into trouble with the IRS, it’s important to keep accurate records of your income and expenses throughout the year. This will make it much easier to file your taxes correctly and on time.
In this article, we’ll explain several important bookkeeping tips to help you stay compliant with tax laws.
Keep Detailed Records
The first and most important bookkeeping tip is to keep detailed records of all your income and expenses. This may seem like a lot of work, but it’s essential for staying compliant with tax laws.
If you don’t already have a system for tracking your finances, now is the time to start. There are many different ways to do this, so find one that works best for you. For example, you could use a spreadsheet, accounting software, or even a simple notebook.
Whichever method you choose, just make sure you’re as detailed as possible. In addition to recording the amount of money you earn and spend, also note the date, purpose, and any other relevant information. This will make it much easier to reference your records later on.
Organize Your Records
Once you start collecting financial records, keeping them organized is important. This will make it much easier to find the information you need when you need it.
One way to organize your records is to create separate files for each year. Within each file, you can then further categorize the records by type. For example, you might have a folder for income records and another for expense receipts.
Another option is to scan and save your records electronically. This can be especially helpful if you don’t have a lot of physical space to store paper documents. If you go this route, just be sure to back up your files regularly in case of a computer failure.
Regardless of how you choose to organize your records, the important thing is to develop a system that works for you. This will make it much easier to find the information you need when you need it.
Keep Business and Personal Expenses Separate
If you’re self-employed or run a small business, it’s important to keep your business and personal expenses separate. This will make it much easier to track your business income and expenses come tax time.
One way to do this is to open a separate bank account for your business. This will allow you to easily see which transactions are for your business and which are for your personal finances. You can then use this information to complete your tax return accurately.
Another option is to use accounting software to track your business expenses. This can be a helpful tool for keeping everything organized in one place. Plus, many accounting programs offer features specifically for small businesses, such as invoicing and tracking inventory.
No matter how you choose to keep your records, just be sure to clearly label all business expenses. This will make it much easier to identify them come tax time.
Keep Your Receipts
Whenever you make a purchase, be sure to save the receipt. This will serve as proof of your expenses if you need to verify them later.
If you do a lot of business travel, you may want to keep track of your expenses using a travel log. This is a detailed record of all your travel-related expenses, such as transportation, lodging, and meals. Keeping a travel log can help you maximize your deductions come tax time.
For larger purchases, such as equipment or vehicles, you’ll also need to keep the sales invoice. This document will include important information about the purchase, such as the date and amount paid. Be sure to save this paperwork with your other records.
Saving your receipts and invoices is an important part of tracking your finances. Be sure to keep them organized and in a safe place so you can reference them later on.
Track Your Mileage
If you use your vehicle for business purposes, you may be able to deduct the mileage from your taxes. This includes travel to and from client meetings, as well as any other business-related travel.
To track your mileage, simply write down the starting odometer reading at the beginning of the year. Then, whenever you use your vehicle for business purposes, make a note of the date, destination, and purpose of the trip. At the end of the year, calculate the total number of miles driven for business purposes.
You can either keep a paper mileage log or download a smartphone app to track your trips. Whichever method you choose, just be sure to keep accurate records. This will make it much easier to calculate your deduction come tax time.
Account for Cash Payments Appropriately
If you run a small business, you may sometimes receive payments in cash. While this can be convenient, it’s important to track these transactions carefully. This is because cash payments are harder to document than credit or check payments.
Whenever you receive a cash payment, be sure to write down the date, amount, and purpose of the transaction. You should also get a receipt from the customer if possible. This will serve as proof of the transaction if you need to verify it later.
It’s also a good idea to deposit cash payments into your business bank account as soon as possible. This will help you keep track of your finances and avoid spending the money for personal reasons.
Tracking cash payments can be tricky, but it’s important to do if you want to stay organized. Be sure to document all cash transactions carefully and deposit the money into your business account as soon as possible.
Scan Your Balance Sheet and Income Statement Monthly
In addition to tracking your expenses, you should also scan your balance sheet and income statement monthly. This will help you keep an eye on your overall financial health and spot any potential problems.
Your balance sheet will show you how much money you have coming in and going out each month. This can be a helpful way to track your progress and make sure you’re not spending more than you’re bringing in.
Your income statement, on the other hand, will show you how much profit your business is making each month. This can be a useful metric for measuring your success and determining whether or not your business is sustainable.
Both your balance sheet and income statement each month to get a better understanding of your finances. This can help you spot any potential problems and make sure your business is on track.
Monitor Your Bank Account and Credit Card Statements
In addition to tracking your expenses, you should also monitor your bank account and credit card statements. This will help you catch any unauthorized transactions, as well as keep an eye on your overall spending.
Whenever you receive a new statement, take some time to review it carefully. Look for any suspicious activity, such as charges you don’t recognize or withdrawals that are larger than usual. If you see anything unusual, report it to your bank or credit card company right away.
Always Remember Your Tax Deadlines
It’s important to always remember your tax deadlines. This includes both federal and state taxes, as well as any other taxes that may apply to your business.
Missing a tax deadline can result in costly penalties, so be sure to keep track of all the due dates. You can use a calendar or set up reminders on your smartphone to help you stay on top of things.
It’s also a good idea to hire an accountant or bookkeeper to help with your taxes. This way, you can be sure that everything is being done correctly and that you’re not missing any important deadlines.
Organizing your business finances can seem like a daunting task, but it’s important to do if you want to be successful. By tracking your expenses, monitoring your bank statements, and remembering your tax deadlines, you can help keep your finances in order.
This will give you a better understanding of your business’s financial health and help you make more informed decisions about where to allocate your resources.
If you want accurate bookkeeping for your business, consider hiring a reputable accounting firm. One of the trusted accounting firms in Florida is Swiftbooks, LLC. Call 786-204-2881 today to help your business keep its financial records straight!