Keeping Good Records Makes Tax Time Much Easier
If you’re excited about the tax advantages of running a home-based business, you should be. But it’s the records that you keep that will ensure that you’re doing everything right for tax time.
Here are some tips that will get your business finances in great shape (and keep them that way).
Keep it separate
It sounds fairly obvious that you would keep your business expenses separate from your personal expenses, but many people don’t do this. In order to have easy to follow business expenses, it’s well-advised that you open up a separate checking account for that purpose.
You should also have a credit card account that is strictly for business expenses as well.
This way, the companies or the bank will do the record keeping for you, without the distractions of the personal expenses.
Get that receipt
Again, sounds like something everyone should know, but many home-based business owners rely on lists of their expenses, rather than ample documentation. You need to keep the receipt for everything that you buy that this business related.
The small receipts add up over time.
If you have an invoice as well, attach that to the receipt for the most accurate records. This will show how much you paid for the item as well as for what kind of item.
Write down the miles
A lot of home-based business owners forget that they can deduct for mileage costs that are incurred because of their business. Get a log book and make sure that you record every mile that you cover for business.
Keep this log book with your tax information and you’ll be ready when you need to be.
Keep it all together
It’s no fun at tax time to have to hunt down all of your receipts and documentation. The best plan of attack is to start a system of filing that makes sense to you. You might keep receipts and invoices in one folder and other expenses in another.
Whatever works for you (and your tax preparer) will end a lot of the stress at tax time.
You might even want to keep a separate filing cabinet if you have a lot of papers to handle.
True record keeping
And what many home-based business owners don’t know is how long they need to keep their financial records.
The average rule of thumb is seven years from the date that the taxes were filed, but some play it safe by keeping records for up to ten years after the fact. While this might take up a little extra room in your office, it is well worth the space if you should ever be audited or need to look something up.
The basics of record keeping can help you create the ideal system for your home-based business. And if you’re still not sure about what you need to do, you may want to look for advice from a licensed CPA or tax preparer.
They will need to handle these kinds of papers, so they’re know the ones that you need to keep and for how long.