How should I keep my business records organized?
Nowadays, tax evasion is considered a severe crime. All the businesses and individuals are educated repeatedly to document all the expenses and income on a fiscal year. It not only helps to keep all the records consolidated, however. It also makes it easier for the accounting and tax solution consultant to file business and individual returns.
If you’re a proper tax filer, you also get eligible for a loan and tax credits. As many small businesses, while preparing for loan applications, ask for loan forgiveness. It benefits from organizing their business records. For the people beginning to organize their business records, we have tips for you to organize business records.
Learn to keep record and how long to keep
Initially, you have to keep business records organized, learning which records are part of the list. If you doubt what records to keep, we have a list below of the documents to be a part of the record:
- General ledger
- Bank statements
- Financial statements
- Credit card statements
- Check registers
- Receipts
- Contracts
- Business tax returns
- Permits and licenses
- Business agreements
- Payroll records
- Insurance documents
- New hire form
Now comes the question, for how long should you keep these records? Below we have mentioned the time for different documents:
- Documents where Wage is calculated – 2 years
- Payroll record – 3 years
- Income tax return – 3 years
- Bargaining agreements – 3 years
- Employment tax records – 4 years
- Sales and purchase records – 3 years
- Income tax return record if you don’t file a return – forever
- Debt reduction claim – 7 years
If you doubt, hold these files for a longer time – after all, it doesn’t affect your health if you keep records shelved at a safe place.
Fund separation
It would be best if you separated your personal and professional bank statements. With the separation of records, you will easily track down personal and professional expenses. If your company has an LLC structure or a corporation, you must separate your bank account. However, in the case of partnerships and sole proprietorships without a doing business as (DBA), you’re not required to separate funds.
Learn essentials of Journal Entries
The best practice to maintain your business and personal record is maintaining journal entries logged in a transaction. These journals are the base of your financial records. To understand the journal, learn about the credit and debit – both are reciprocal; when one increases, other decreases. Ensure how does a debit and credit work before beginning to maintain a journal.
Make it digitalized
With technology, things have changed. Now we have software to maintain tax records and even file your return through the software. The paperwork is hardly done; all are disposed of once the record is digitalized. Create scan copies of all the receipts and add them to your business record. However, in digital copies, you have two copies, one will be original.
Use Software for Accounting
As we mentioned it earlier, people use software to file their return. It puts them in a comfort zone, as they don’t have to search for the receipts anymore. Everything is technologically handled, and FINTECH is already advancing to diminish the paperwork. All the recordkeeping in hardcopy is seemed to be quite old now.
So, with small steps, you record all the business activities for tax return filing. Take some time each week to consolidate your expenses and income for each week. It’ll keep you stress-free at the end of the fiscal year. Most significantly, you’ll likely to escape all the notices from the tax revenue department.