The Business of Keeping Records

As a business owner, your financial information is incredibly important and necessary to help you run your business. But how do you know what to track?

It all starts with a system. You need to have an accounting system that will clearly track the financial state of your business. There are lots of different types of accounting systems (we have a few recommendations) but ultimately, you need something that will summarize your business transactions, gross income, deductions and expenses.

Supporting documentation. In order to get the information you need for your accounting system, you need to have the records or supporting documentation. These types of records include:

Gross receipts = income you receive from your business

  • Cash register tape
  • Deposit information
  • Receipt books
  • Invoices
  • Forms 1099-MISC

 Purchases = what you resell to customers, as well as what you buy

  • Canceled checks
  • Credit card receipts and statements
  • Invoices

 Expenses = costs you incur (other than purchases)

These need to show the amount you paid as well as a description of what it was.

  • Account statements
  • Credit card receipts or statements
  • Invoices
  • Petty cash slips

As a note, if you deduct travel, entertainment, gift or transportation expenses, you have to prove certain elements of the expenses. For more information on how and what to do, go here.

Assets = property you own and use for your business

  • When and how you obtained the assets
  • Purchase price for each
  • Cost of improvements
  • Documentation of deductions taken, including: 179D, depreciation, casualty losses
  • Selling price
  • How the asset was used
  • Expense of sale

So where do you find all of this information? Often you can find it on purchase or sales invoices, real estate closing statements and even canceled checks that identify the payee, amount and proof of funds transferred.

Employment taxes

There are lots of different tax records you need to keep. At a minimum, you need to keep record of employment for four years.

Why you need to worry about it.

For starters, accurate books help you make financial decisions about your business. But there’s even more benefits to ensuring you have good records.

  • Tax time isn’t fun when you don’t have good records. Your books allow you to report accurate revenue, keep track of deductible expenses, calculate gain or loss on sold property and various other items you’ll need for your tax return.
  • Without solid financial information, your bank won’t be able to make lending decisions for your business.

For more tips and tricks on why you need to keep good records, check out this blog.

 The moral of the story

Documentation is important when it comes to running your business. It’s necessary to ensure you’re in compliance, as well as gives you the information you need to ensure you have the right financial information.

Record Retention

Record RetentionToday we talk about another exciting and exhilarating part of running a business: record retention. Before you doze off, let’s talk about why record retention is important and can save you from a lot of headache and heartache later on.

When you start a business, there’s a lot of stuff that comes with it. At the end of the day, it amounts to a little more than a lot of paper, or data, or both. That’s where record retention, and a retention policy or guidelines, come in handy. Record retention is the amount of time a document needs to be kept or retained, whether it be electronic or paper. After the record retention time has been completed, the document can be destroyed.

Preemptively tossing a record can be a nightmare. Why? Well, for one thing, it’s required to retain records by law. Yep, there are federal and state laws which require businesses to have a record retention period, regardless of format. If a record is destroyed too soon, it can wreak havoc on your personnel (try doing your taxes or working with an internal auditor when you don’t have the right documentation) and could even result in fines or legal action … doesn’t that sound fun?

But don’t let the above scare you into thinking you should never destroy ANYTHING. Business records can be voluminous and bulky and, if you’re not careful, will make your business look like an episode of Hoarders. So how do you know when to keep it and when to toss it? Well, I’m glad you asked, because Eide Bailly has developed this handy sheet with record retention guidelines. Check it out!

The moral of the story? Don’t just throw it away, but don’t just keep it either. Rather, develop a record retention policy, using the above as a guide, to ensure that you have just the right amount of stuff as you progress within your business.


It’s the Season of Giving

season of giving

It’s beginning to look a lot like Christmas. The lights are up on the house, the stockings are hung and the presents are wrapped underneath the tree (unless you’re a procrastinator … in which case you have exactly 2 days to make it look like Christmas).

It’s the season of giving, to family, friends and even charities. As you give, here are a few tips to consider from a tax perspective.

Contribute to Qualified Charities. If you’re planning on itemizing your charitable deduction on your tax return, make sure your donation goes to a qualified charity by December 31. Not sure what a qualified charity is? Ask them about their tax-exempt status. Or, you can go to and use the Exempt Organizations Select Check tool to make sure.

If you are a taxpayer 70 ½ years of age or older, you can make a donation to a charity directly from your IRA (individual retirement account, a.k.a. what you’re going to live off of when you retire). If you do this, the amount is not included on taxable income. However, that also means you can’t itemize this deduction (on your handy form known as Schedule A).

Oh, and a reminder: gifts given to individuals, whether to friends, family or strangers, are not deductible. Hope your mom enjoys her new perfume.

Keep records of all donations. You’ll need to track any donations you’re planning on deducting, regardless of the amount. How do you do this? You can use a cancelled check, bank or credit card statement or payroll deduction record. For contributions of $250 or more, you must receive a written acknowledgement from the charity which states the following:

  • The charity’s name
  • The date of the contribution
  • The amount of the contribution
  • Whether or not any goods or services were received in exchange for the donation

This documentation isn’t just for fun. If you’re going to itemize your deductions, you have to have the written acknowledgement from the charity prior to filing your tax return.

Give in good condition. To be tax-deductible, clothing and household goods you donate to charity generally must be in good used condition or better. So don’t try and donate your old gym socks. This includes furniture, furnishings, electronics, appliances and linens.

Here’s a little tip from us to you. It’s a good idea to take pictures of donated items for substantiation (otherwise known as proof). Also, certain non-cash donations of $5,000 or more will require an appraisal.

Did we mention records? In order to deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or written communication from the charity. So what do we mean by monetary donations? Well, checks, cash, electronic funds transfer or credit card. But it can also apply to payroll deduction. To do this, the taxpayer needs to retain a pay stub, a Form W-2 or other documentation furnished by the employer.

Keep it to 2015. Contributions are deductible in the year they were made. So if you charged it to a credit card before the end of 2015, it counts for 2015. Even if you’re not paying your bill until 2016.

You can’t be itemized and standard. For individuals, only taxpayers who itemize their deduction (on a little form known as Form 1040 Schedule A) can claim charitable contributions. Meaning, if you normally take standard deduction, you’re out of luck for charitable deductions. Need more clarification on this? Ask your tax professional.