Home Business Record Keeping Tips

by WorkFromHome on November 5, 2011

Keeping good records is essential for the success of any business, but this is especially true for a small home business. Failure to create and store appropriate financial records and documents could expose your business to several risks. One is an audit by the Internal Revenue Service (IRS) which has increasingly tightened the scrutiny of deductions for home business expenses. Another is the inability to file insurance claims due to a lack of receipts or proof of purchase dates. Regardless of the situation, you will do yourself more harm than good if you do not take the steps necessary to organize your business transactions in an efficient manner. Here are some tips on how to keep your home business records in order.

Backup Electronic Records

Because the majority of home business records are now stored on computers, it is essential to make regular backups of your electronic data. Not doing so could leave you at risk due to a computer crash, accidental deletion of files or the corruption of programs by viruses. Your essential files should be saved to an external data storage unit, such as a compact disk or flash drive, on at least a monthly basis. It is best to store these backup files in a safe place where they are protected from fires, floods or other natural disasters. Depending on the type of home business, it may also be prudent to store backup business records with one of the many online companies now offering this service. These companies do charge fees, but they guarantee that there will never be a loss of any records you store with them. You should also regularly backup any important documents you have scanned into your computer like tax returns or records you are required to keep by state and federal laws.

Organize Your Records By Year

There is nothing more frustrating and time consuming than searching through poorly organized computer files or disorganized boxes of receipts to find a specific transaction. The best approach is to organize your business records by year so you can have easy access to the information you need for items like tax returns and generating financial reports. For computer records, place every document related to a year in a separate file that can be easily accessed. For paper documents and receipts, organize them by year and clearly mark the contents on the outside of a storage box or plastic container. The key is to organize your records in ways that makes it as easy as possible to find exactly what you need in as little time as possible.

Destroy Unwanted Documents

It is best to destroy unwanted documents in a safe manner for two reasons. One is to protect both your business and clients identities. Even as the owner of a small home business, you have the same obligations as any business to protect the personal and fiduciary information you have on hand. The other reason for destroying unwanted documents is to avoid a clutter of papers that only wastes your time while you are digging through boxes or folders looking for something. These documents should be destroyed in a safe manner such as shredding or burning. Never dispose of documents containing sensitive business information by simply throwing them in the trash. Doing so only enhances the possibility that you or your clients information will be stolen.

Stay Ahead Of The IRS

Your basic business records should always be structured in a way that keeps you one step ahead of the IRS. According to their publication 583, you must keep good records in the following business categories:

  • Gross Receipts: These receipts are supporting documents for the income you receive from your business. Documents that show gross receipts include bank deposit slips, cash register tapes, receipt books, invoices and credit card charge slips.
  • Expenses: All expenses to support your business or for the purchase of products that you resell must be clearly documented in ways that prove they are strictly business related. This is one area where many home business owners run into problems because the IRS will quickly disallow any tax deduction that they deem as being more personal than business related.
  • Assets: These are the property and goods you own and use for your business. You must keep records to verify certain information about them, especially if an asset is taken as a depreciation on a tax return or is shown as a gain or loss when sold. The most important information the IRS requires for an asset include when and how it was acquired, the purchase price, cost of improvements, how it was used and how you disposed of it.

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