Start a 2010 paper trail now
Like most of you, we run our business on a calendar year rather than a fiscal year so we are starting to close the books for 2009 and begin a new year. Each January, we label folders for each month. These will hold all physical invoices, records, receipts and statements as they accumulate. Since every scrap of paper related to the business goes into a monthly folder, you may need twelve boxes. Duplicate checks attached to receipts, deposit slips stapled to paid client invoices and reconciliation printouts clipped to our bank statements before they go into the correct folder. We make copies as needed to file with each client’s individual records.
Electronic bookkeeping, invoicing and online banking put everything at your fingertips. Well, here’s the thing — for Uncle Sam and our accountants, that’s just not enough. They demand a paper trail of physical records to support the electronics. If a business is audited, we have to quickly locate those various snippets of paper — up to 10 years later.
Here are some business expenses IRS allows you to deduct if you have documentation:
- Advertising (including on-line expenses, e.g. Google AdWords, etc.)
- Accounting/bookkeeping fees
- Bank service charges (safety deposit box rental, etc.)
- Vehicle expenses (actual expenses or portion based on miles driven)
- Consultation, training and supervision fees
- Contract labor (outside services, subcontractors, etc.)
- Credit card fees and interest
- Depreciation on assets used in the business
- Dues (for professional and civic organizations)
- Educational costs (for you and your employees)
- Entertainment/business meals
- Postage/mailing
- Freight/shipping
- Gifts (business or charity related)
- Insurance for job performance, fire, theft, employee benefits, owner’s health coverage and auto insurance unless you take a mileage deduction
- Interest on business credit cards and loans (not principle)
- Inventory/merchandise purchases (items for sale to others)
- Legal and professional fees/licenses
- Magazines and books (related to your business/industry)
- Maintenance and repairs
- Mileage expense unless actual costs are used (trips to post office, bank, supply store, second job, professional meetings, printing shop, educational facilities, even Goodwill to donate retired office equipment) Simple mileage recode form
- Office supplies
- Online/internet fees
- Payroll taxes (only the employer’s share of taxes — not the taxes withheld from the employee’s paycheck)
- Printing and copying
- Rent/home office expense
- Sales or excise tax (for businesses required to collect this tax)
- Small furnishings and equipment
- Storage expenses for inventory, equipment, furniture, business records
- Taxes: business vehicle registration and fees, sales tax you paid, property tax on assets owned by the business
- Telephone (including pager, answering service and cell phone)
- Travel (outside normal business location)
- Utilities (or percentage if you have a home based business and share utilities)
- Wages for employees (your wages and independent contractors’ payments are recorded under other categories)
- Website creation, maintenance and hosting fees. if you need these services.
If you have misplaced any of these records for 2009, now is a good time to start looking for them.
Note:
This list does not include everything you can deduct or all the records you are required to keep. Some of the items mentioned may not apply to your business. If you have questions, consult a tax professional. More information is available on the IRS website.
Tips:
To duplicate credit card receipts, checks and such from fading over the years, gang a bunch together and photo copy them.
A friend says she always holds a few miscellaneous deductibles back at tax time so she can bring them out at an audit. She swears it backs off the auditor. Maybe. Then again how would she know if it worked?
