Records must be Clear and Proper as Required under the USA Law
Under the USA Tax law anyone carrying on a business must keep proper records to “enable the Tax Commissioner to ascertain the correct tax liability they have”. You have to be able to explain all transactions in your business. This includes recording sufficient information for the IRS to ascertain your correct taxable profit and confirm your deductible expenses.
The IRS requires you to keep all records in the English language and those records must be clear enough to enable them to work not only the correct taxable income of your business but also the correct taxable income of you as business owner. Your business records must be retained for at least 5 years, from the date when your tax returns are lodged. In some cases the IRS can go back 10 years if they so require.
Your records must be kept safe in an area or storage place where they can be referred to easily. While this is usually a nuisance to most business owners it is much better keeping records handy rather than trying to reconstruct what happened many years before should the IRS require verification of any matter.
If you make any claims for tax purposes these records will enable you to verify your payments and income so records such as receipts and copies of invoices etc will come in handy. One of the main reasons therefore for keeping good business records is to comply with the requirements of law.
28 ways your Records will Assist you
As already covered records are necessary to aid you with the decision making in your business as well as to meet the requirements by law.
Complete and accurate records will assist you in the following areas:
- Will show you what your profit is at any time from your financial statements
- Will assess the overall state of your business at any time.
- Will show you who owes you money and for how long
- Will enable you to locate information that you might need to satisfy customer queries or supplier queries at any time
- Will enable you to monitor how your business is going on a day to day basis
- Will indicate to you what your business is worth if you were interested in selling it
- Will tell you at any time how much cash you have available for use in the business
- Will help you to reduce your accounting and legal fees.
- Will give you the necessary information to plan for expansion.
- Will identify the bills that you need to pay
- Will give you the details that you need when applying for finance
- Will provide you with the information on which to base your insurance cover
- Will help you control and monitor your expenses and overhead
- Will tell you whether you can afford to purchase new equipment or office furniture etc
- Will enable calculation of the current cost of your goods and services
- Will assist you to keep all costs to the business under control
- Will provide information on staff about their wages, bonuses and commissions due.
- Will provide the information that you need to make decisions.
- Will allow your business performance to be compared with others in the industry.
- Will indicate the effect of your advertising and sales promotion efforts
- Will allow calculation of your business and personal tax
- Will allow your banker to see the financial statements that are completed from your records, especially if you are looking at loan finance.
- Will enable you to locate information that you might need to satisfy customer queries or supplier queries at any time
- Will provide information that will enable your Sales Tax return and Tax returns to be completed and filed on time
- Will allow you to determine the correct amount of profits that your business has made so that distribution can be allocated correctly to other business owners or partners.
- Will allow for a large corporation, proper records will enable the accurate company profits to be determined so as to allow the directors to formulate a dividends policy.
- Will allow you to comply with the requirement of Tax Law.
- Will help to maximise the chance of your business succeeding.