Wednesday, January 2, 2013
Editor’s Note: Want to make your business better? Learn how by reading a special article courtesy of the SCORE Lake of the Ozarks the first and third Wednesday each month in The Lake Today.
People collect most anything – antiques, baseball cards, vinyl records. Small business owners collect receipts.
They have to. Invoices, cash register tapes, and bank deposit records verify the amount of money that’s been brought into the business. Expense receipts verify where that money goes, and for what reason.
Along with helping gauge the efficiency and profitability of your small business, these documents also important for calculating business expenses for tax purposes.
With a few exceptions, there are no specific rules for what records to keep. However, it’s wise to keep any and all records related to business transactions and all documents that support them.
Some examples of what records to keep include:
• Gross receipts - the amounts and sources of income your business receives
• Purchases - items you buy and resell to customers, raw materials for production, supplies necessary to provide your product or service, etc.
• Other expenses - non-purchase costs of goods or services necessary for your business
• Employment records - salaries and deductions for employees, payments to independent contractors, etc.
• Assets - information on equipment, furniture, and property used in your business, including purchase, depreciation, and sale
Increasingly, these transactions are being handled online and verified with an electronic file such as a PDF document, or a “screensave.” While this helps cut the transfer of paper, it’s wise to print a paper copy and save the file to disk. That way if one source is lost, you’re assured of having a back-up.
So now that you’ve collected all these records, how long do you have to keep them?
Financial management experts Ken and Daria Dolan (www.dolans.com) recommend keeping these documents “forever:”
• Records that relate to your home (mortgage, deeds, capital improvements, etc.)
• Documents showing non-deductible and deductible IRA contributions
• Tax returns and checks used to pay taxes or to substantiate deductions.
Other documentation is less permanent. Examples include:
• Accident reports/claims – seven years
• Back-up tax paperwork – 10 years
• Bank reconciliations – one year rolling
• Bank statements – three years
• Brokerage statements – Year-end only
• Contracts, notes and leases (expired) – seven years
• Credit card statements – one year rolling
• Insurance policies (expired) – three years
• Mutual fund statements (after sold) – 10 years
• Paycheck stubs: normal – one year
Because electronic storage is so inexpensive and convenient today, you may still elect to save scanned versions of both permanent and “disposable” documents to compact flash drives. Just be sure you store them in a secure, fire- and moisture-proof location.
Need help with record keeping and other small business tax issues? Then contact SCORE, a nonprofit association that offers a wealth of information resources, training, and free counseling designed to help entrepreneurs start, grow, and succeed nationwide.
For more information contact the Lake of the Ozarks SCORE Chapter at http://www.lakeoftheozarks.score.org/, by e-mail at email@example.com or call 573-346-5441.