Keeping accurate records for tax purposes and daily operations is critical when you own a business. Clear, organized records allow business owners to know where they stand financially at any given time during the year. You know that the IRS requires specific documents in order to evaluate the amount of taxes owed, so prior to reviewing your finances with your CPA, make sure your records are in good order when you submit them. Here’s why financial record keeping is vital for business, especially at tax time.
What Documents Do I Need to Prepare for Tax Time?
1. Gross receipts – You need to authenticate the income that comes into your business with gross receipts. Be certain to include all forms, including 1099-MISC, for each person/business you have paid throughout the year.
2. Purchases – These include items you resell to customers or raw materials and parts you use to make the products you sell to customers. The documents you submit must include the date, the name of the payee, the goods purchased, the cost, and the amount paid.
3. Expenses – Include invoices and receipts for all major expenses, such as rent, utilities, payroll, insurance, company vehicles, software, and hardware.
4. Miscellaneous Expenses – Miscellaneous taxes are charged on travel, entertainment, transportation, and gifts. There are several criteria that must be met to qualify these types of charges as legitimate business-related expenses that can be itemized.
5. Assets – Business assets are categorized as everything that the business owns, anything tangible which is of value to a company, and is seen to promote productivity, efficiency and revenue. Examples of assets include cash reserves, land, rental facilities, inventory, production equipment, office furniture, and company-owned vehicles such as delivery trucks. Anything that is used exclusively for the business is eligible to be considered a business asset.
6. Employment Taxes – You must submit specific information for each employee; records of all employees, including former ones, must be retained for four years.
Items that can serve as acceptable proof of payment include cash register receipts, cancelled checks, cash and credit card receipts and statements, paid invoices, and receipt books.
What Could Happen if I Don’t Submit the Required Information?
Your CPA cannot properly file your taxes without the records listed above. As we all know, the IRS gets unhappy if you don’t pay your taxes. You can count on penalties and interest starting as soon as April 16th. Worst case scenario? If you continue to fail to file your taxes, the government will estimate how much you owe based on the information they currently possess, but at that point deductions or credits will not be considered. In addition, the IRS can garnish your wages and/or put a tax lien on your business. If you ignore the tax lien, you can expect that lien to become a levy, which can lead to forfeiture of your business, making it nearly impossible to recoup the taxes you owe. Of course, this also increases your chances of getting audited.
What Happens if I Get Audited?
When the IRS conducts an audit, they dig deep into your financial records to find the necessary answers. You can be optimistic that you will pass the audit if you have accurate records – but you must have acceptable documentation. These are even more reasons for keeping accurate records and providing them to your CPA so they can accurately file your taxes on time. If your CPA is an enrolled agent, they can act as your representative and negotiate with the IRS on your behalf.
At Myrick CPA, you can efficiently submit all your documents via our client portal. Our professional team will ensure your taxes are properly filed. We recommend that you consider signing up for our Client Care Services Plan at the time when you file your taxes. The plan provides you with peace of mind, in the event that you receive a notice from the IRS or the State. Contact us to learn more about financial and tax planning for your small business, or to learn more about our new Client Care Services Plan.