Question: How Do I Capture Information for Business Records?
The IRS requires businesses to keep adequate records for tax deductions. This means you can't wait until you are audited to dig up your records; you must keep them in a place where you can find them quickly and in logical order. Here is a quick and easy capture method for keeping business records.
Answer:
How to Capture
Work on the KISS principle for business record keeping; that is, Keep it Simple and Safe. No matter how small or large your business, you can capture records painlessly:
- Get a large container (a box will do, or one of those plastic file folder holders from the office supply store) and a bunch of cheap file folders.
- Create as few categories as possible. Use the five categories for business records -- Assets, Liabilities, Expenses, Income, and Owner's Equity/Retained Earnings. Don't worry about getting things into a specific detailed category. All you really care about is the capture at this point; it really doesn't matter how many or how few folder you have. I have one folder for income, one for expenses, one for bank statements and credit card receipts, one for travel, one for asset purchases, and one for outside services (independent contractors). I don't have petty cash or employment taxes.
- Keep the file folder system next to the place where you sort your business mail, so all you have to do is take it out of the envelope, note what it is about, and capture it in the correct folder. All in one smooth motion. No wasted effort.
- On your computer, create a separate folder on your email system to collect every email that relates to your finances, receipts and correspondence – you get the idea. See if your email system will let you create a “rule” to move regular emails (like those acknowledging receipt of funds from online sales) to this folder. If you have a bookkeeper, see if you can set up an automatic forward of financial information to that person, or forward manually.
- Make notes on statements. The only thing I take any time with is the bank account statements and the credit card receipts. If there is no detail available on deposits or receipts, I make a note of who the income came from and who the check was written to.
- Capture asset paperwork. If you buy an asset during the year, capture the paperwork in the "asset" file.
- Capture travel paperwork after every trip or every month. For travel, make a separate file and dump all receipts (don't forget tolls) and mileage logs into a file folder.
After You Capture the Information, you can use it to create reports and tax statements.
Finding a simple system that will capture the information you will need later if essential. You can't deduct it if you can't find it.
