Keeping good records yourself, no matter how unpleasant it may seem, will minimize the costs of paying an accountant and allow you more control of your financial information and operations. Maintaining good records can also help you avoid headaches at tax time by keeping track of your receipts and other records throughout the year. This can help you remember the various transactions you made during the year so you can properly document and maximize your tax deductions.
Normally, tax records should be kept for three years, but some documents – records relating to a home purchase or sale, stock transactions, IRA and business or rental property – should be kept longer.
Good record keeping not only enables the IRS to evaluate your business activity through original and supporting documents, but it also gives you the information you need to properly manage and grow your business.
You can keep track of your business transactions by writing them down, usually in books such as journals or ledgers or by typing them into a computer software program. It’s best to choose a system that’s simple, yet can be changed to meet your needs in the future. An accounting system should show your income and expenses and can be easily understood, especially by you. If you have more than one business, it’s best to keep completely separate books for each type of business activity.
The two basic types of bookkeeping methods are single entry and double-entry systems. Whether you choose to keep a written ledger or use computer software, record only the information that needs to be documented.