The Monthly Newsletter for Web Professionals
Volume 7 Issue 09 - September 2005
Featured Article
Run your business by the books
Keeping complete records of activity is sure to make your life easier
Editor’s note: In the next few issues of the WOW newsletter, we’ll take a look at the importance of documentation and record-keeping for Web professionals, whether you own your own business or work for a large corporation educational institution or the government. This first installment discusses general record-keeping, what record to keep and for how long.
By Mike Sturman
editor@joinwow.org
http://www.contentassociates.net
Small, one-person businesses and large, mega corporations may not have much in common. But the single thread that binds all businesses is the need to keep the books. Record keeping is without a doubt the most important part of running a business, no matter the size.
The reasons for documentation of business expenses and personnel records are many. The most obvious one is that come April 15, you’ll need many of those records to satisfy the IRS. Keeping good records also can ease the transition between incoming and outgoing employees; can give you a picture of how your operation is doing; and will help you when you apply for loans, grants or other funding.
An article at http://www.seniormag.com/marketing/record-keeping.htm best describes what good records will tell you, including:
- How much income you are generating now and how much income you can expect to generate in the future.
- How much cash is tied up in accounts receivable (and thus not available to you) and for how long.
- How much you owe for merchandise. Rent. Utilities. Equipment.
- What your expenses are, including payroll, payroll taxes, merchandise, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees (such as health insurance, retirement, etc.).
- How much cash you have on hand; how much cash is tied up in inventory; and what your actual working-capital budget is.
- How frequently you turn over your inventory.
- Which of your product lines, departments or services are making a profit, which are breaking even and which are financial drains.
- How all of the financial data listed above compare with the previous year or quarter and how they compare with the projections in your business plan.
- How all the financial data compare with those of your competitors and with others in the industry?
Granted, Web professionals may not have to worry about inventory and product lines, but the best advice is to keep every receipt, no matter how trivial you think the expense is. In business, you never know what you may need and, in some cases, if you don’t have certain records, it could cost you in fines and repayments.
The Internal Revenue Service, http://www.irs.gov/businesses/small/article/l, offers the following guidelines for deciding what types of records to keep:
- Gross receipts are the income you receive from your
business. You should keep supporting documents that show the amounts and
sources of your gross receipts. Documents for gross receipts include the
following :
o Cash register tapes
o Bank deposit slips
o Receipt books
o Invoices
o Credit card charge slips
o Forms 1099-MISC
- Purchases, some of which may be tax deductible. Documents
for purchases include the following:
o Canceled checks
o Cash register tape receipts
o Credit card sales slips
o Invoices
- Expenses are the costs you incur (other than purchases)
to carry on your business. Your supporting documents should show the amount
paid and that the amount was for a business expense. Documents for expenses
include the following:
o Canceled checks
o Cash register tapes
o Account statements
o Credit card sales slips
o Invoices
o Petty cash slips for small cash payments
- Travel, Transportation, Entertainment, and Gift Expenses
- Assets are the property, such as machinery and furniture,
that you own and use in your business. You must keep records to verify
certain information about your business assets. You need records to compute
the annual depreciation and the gain or loss when you sell the assets.
- Employment taxes
Keep all records of employment for at least four years.
Then there’s the question of how long to keep records. Here’s what the IRS says, in its own unique language:
“The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.”
Basically what the IRS is trying to say is that you need to keep your records until the IRS says you don’t need them any more. Clear as mud, huh?
Here are their details about how long to keep certain documents:
- You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
- You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
- You file a fraudulent income tax return; keep records indefinitely.
- You do not file a return; keep records indefinitely.
- You file a claim for credit or refund after you file your return; keep records the later of: 3 years or 2 years after tax was paid.
- Your claim is due to a bad debt deduction; keep records for 7 years.
- Your claim is due to a loss from worthless securities; keep records for 7 years.
- Keep information on an asset for the life of the asset, even when you dispose of the asset; keep records indefinitely.
- Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
For more information on record keeping, check out the following resources:
Record keeping
http://www.irs.gov/businesses/small/article/
Publication 535 (2004), Business Expenses
http://www.irs.gov/publications/p535/index.html
Commonsense Tips on Keeping Business Records
By Isabel M. Isidro, Managing Editor of PowerHomeBiz.com
http://www.powerhomebiz.com/vol4/commonsense.htm
Business Recordkeeping
A series of articles by Ed Zimmer of The Entrepreneur Network
http://tenonline.org/art/bsr.html
Record keeping essentials
By the Australian Government Tax Office
http://www.ato.gov.au/businesses/pathway.asp?pc=001/003/
Record keeping for your own business
From 360 Degrees of Financial Literacy
http://www.360financialliteracy.org/