Running a home-based business means having to be able to keep track of all expenses such as your seller’s permit purchase and business supplies, as well as your business income. Knowing how to keep and maintain these important records will make it much easier at tax time.
Records Your Business Should Keep
- Client information
- Receipts for rent/mortgage
- Receipts for electricity
- Cash flow book
- Balance sheet
- Monthly profit and loss statements
In addition to record-keeping, you must also figure out a system for organizing and storing them.
Keep Records in One Place
By having a space dedicated to your business records, you’ll always know where to find what you need. If you’re just starting out, a multi-file folder may be all that you need. As your business expands, you’ll need to invest in larger storage like a filing cabinet.
Your file folders should be clearly marked with the categories above. Whenever you receive a receipt or invoice related to your business, simply place it into the appropriate file. To keep your system as convenient as possible, write the date on each document you receive
At the End of the Month
When the month ends, it’s a good idea to create a cash flow statement. If you have a lot of clients, you may need a book for this. The cash flow statement will summarize all of your business income and expenses for the month.
You can also create a balance sheet, which will show the financial position of your business. This document will show how much money you have, the amount of capital being used, and similar items. The yearly profit and loss statement summarizes all of your business transactions.
When the month ends, complete your cash flow and balance sheet for the month and gather all of your receipts and invoices. Staple all of these together, fold them, and place them in an envelope. Seal with an elastic band and mark the month and year on the envelope.
At the end of the year, complete your profit and loss and gather your envelopes. Store this information in a box marked with your business name and year and place it in a spot designated for your business information. You can also keep digital records stored on some kind of media, though this may require scanning certain documents.
How Long to Keep Tax Records
The IRS requires all businesses to keep certain records for different lengths of time. Past tax returns, receipts, and miscellaneous financial documents should be kept for three years. Employment tax records need to be kept for four years.
Keeping records is a necessary part of doing business. You can’t start that business without the right licenses and permits. FastFilings gets important business documents to you fast in just three easy steps. Visit us online for more information.