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Avoid Tax Stress – Keep Good Records!

February 2, 2010

One thing that changes when you become a small business owner is the “luxury” of paying taxes only on April 15.

Depending on your location and type of business, you will have to pay a number of commercial and revenue taxes several times a year. If you keep good records, you can eliminate the worry and complications of these required  filings. The key is to create a recordkeeping system that is consistent, organized and comprehensive. 

Today, accounting software makes sense for even the smallest businesses to record and reconcile transactions. Whether you use a manual or computerized system, though, your goal is the ability to document your business activity for tax purposes, as well as develop a picture of how your business is doing at any given time. All funds passing through the business should be documented in your checkbook and logged into the general ledger, which serves as the master record of your business’s financial transactions. 

Even if you are a solo entrepreneur, you should maintain a dedicated bank account for all business transactions, keeping the business account separate from your personal or household expenses. This business account is a master record of the financial history of your business. 

Deposit and enter all cash and check receipts into this business account and post all expenditures through it. This ensures that all incoming and outgoing funds associated with the business are properly documented. If you do not have a business name, open the bank account in your name as a business account. 

A petty cash box can take care of advances for small day-to-day expenses, such as parking or postage. However, you should strictly limit the number of employees who can access or disperse these funds. Require signed receipts for any use of petty cash. 

Make sure you maintain on your calendar all deadlines for filing returns and making payments on state, local and federal taxes.

In Pennsylvania, the state’s Electronic Tax Information and Data Exchange System (E-TIDES)  is a helpful internet filing system that allows business owners to do  electronic filing of returns, payments and/or extension requests.

The IRS can provide additional pointers to help make your tax preparation less complicated. Downloadable forms, publications and other resources are available at www.irs.gov. 

To discuss business taxes requirements, processes and options contact Lancaster SCORE, “Counselors to America’s Small Business.” SCORE is a nonprofit association of more than 50 business mentors who provide free and confidential business counseling to small business owners. Call us at 717-397-3082 or find us online at http://www.scorelancaster.org/

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