Now is a good time for people to begin thinking about next year’s tax return. While it may seem early to be preparing for 2021, reviewing your record keeping now will pay off when it comes time to file again. You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
Proper business record keeping provides the business a real-advantage over competition in different ways. It helps you to manage your accounts, interests, taxes and working costs effectively. It can act as resource for new strategies. It will also reveal the success of your past campaigns and improvement in present campaigns.
Good records will help you do the following:
- Monitor the progress of your business
- Prepare your financial statements
- Identify sources of your income
- Keep track of your deductible expenses
- Keep track of your basis in property
- Prepare your tax returns
- Support items reported on your tax returns
Most importantly, you need good records in order to prepare your tax returns!
Here are some suggestions to help taxpayers keep good records.
- Taxpayers should develop a system that keeps all their important information together.They can use a software program for electronic record keeping. They could also store paper documents in labeled folders.
- Throughout the year, they should add tax records to their files as they receive them.This includes Notice 1444, Your Economic Impact Payment, and unemployment compensation documentation. Having records handy makes preparing a tax return next year easier.
- Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
- Review their tax return to make sure they didn’t overlook any credits or deductions.Double check credits and deductions. Records that taxpayers should keep include receipts, canceled checks and other documents that support income, including any unemployment compensation.
- Taxpayers should also keep records relating to property they dispose of or sell.They must keep these records to figure their basis for figuring gains or losses.
Keeping good records also helps you keep up with all of those deductible business expenses that you have all year long. You definitely want to be able to take those off the top of your gross receipts otherwise you are going to be stuck with a huge tax bill. But if you don’t keep track of them your accountant is not going to be able to manufacture the numbers out of thin air for you. Also, keeping good records does not mean throwing all of your receipts into a box for your accountant to decipher at the end of the year.
On an added note, if you’re in business then you need to have an accountant who is not going to just prepare forms and returns for you, but also will help you with your tax planning to make sure you get the most out of your business. If your accountant offers bookkeeping services you should consider taking advantage of that service!
We can’t stress it enough so remember,
Good record keeping is an essential element of tax planning and a very important part of your business!