ABS Accounting

If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks.

Resource: IRS Publication 583

Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.

Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

Source: IRS Publication 552

1.Schedule time to input information into QuickBooks on a weekly and monthly basis. This will prevent you from getting behind and will give you more accurate historical data.

2.Backup QuickBooks monthly. If your system crashes you will lose only one month worth of data. There are two ways to backup your QuickBooks. There is the traditional backup and then the portable file backup which takes up less space.

3.If you create invoices for your product or services you should receive payments against the invoices when payment are received and don’t forget to record the deposit. You can receive multiple payments and record to one deposit.

4.It is important to record all checks or credit card charges in QuickBooks to have a clear picture of where your cash is going.

5.Reconcile you bank statements and credit card statements monthly. This will help to make sure that all of your cash and credit card transactions are recorded so that you will have financial statements that are accurate.

QuickBooks is a system designed for people who do not have an accounting background. It is important that you have someone with an accounting background assist you with setting it up and give you training. Also, periodically you should have someone review your work for accuracy. Start out monthly and then you could probably go to a quarterly review. You don’t want to do or miss a lot of transactions and have to pay someone to go back and enter information. It could be costly.

When are Accountants/Bookkeepers needed?
Entrepreneurs/business owners misunderstand why they need to have an accountant or bookkeeper working with them. Unless they are in trouble with the IRS, need financing or need information to prepare tax returns is when they contact an accountant/bookkeeper to help with their finances. The Accountant/bookkeeper is that last person on the list to contact.

Accountants/Bookkeepers continue to help the entrepreneur/business owners because they want them to succeed. Assisting with straightening up the financial books, creating financial system and reconciling cash tends to be an ongoing job. No matter how much advice is given the accountant/bookkeeper are usually left out of the daily business operations.

Life would be so much easier and less expensive for all if the following things were put into place when running a business:

• Record financial transactions into an automated accounting system
• Keep all receipts and documentation
• Reconcile Bank accounts monthly
• Seek out an Accountant/Bookkeeper to review or assist in keeping you financial system accurate

What are some basic reasons to have an accountant/bookkeeper actively helping with your financials?

Basic tax tips for individuals that will help them to prepare for their year-end tax preparation:

1. Job search expenses that you incur while looking for employment and are related to your current occupation are deductible.

2. Education Tax Credit should be considered when preparing tax returns. Check to see if the Hope Credit or Lifetime Learning Credit applies.

3. Home insurance premiums may be deductible. To qualify the insurance policy must be for home acquisition debt. Mortgage Insurance premiums are reported on form 1098 which is sent out by the lender.

4. Tax preparation fees

5. First-Time Homebuyer Credit applies to individuals who purchase a home after April 8, 2008 and before July 1, 2009. It only applies to your main home located in the United States.

6. Charitable contributions

7. Medical Expenses are deductible if you spend more than 7.5% of your adjusted gross income on non reimbursed medical expenses.

8. Claiming dependents who are full time students, live with you and whom you provide half of their support and are between the ages of 19 and 24.

9. Real Property tax deductions maybe claimed by individuals that elect to itemize.

10. Educator Expenses are deductible up to $250 for classroom supplies that are purchased during the year.

11. Look for help from someone who is familiar with tax laws.

1. Keep very good records: Unlike a large company in which someone is hired to maintain records of all income and expenses, it is up to you to keep very good records, save all receipts and be able to support your deductions.

2. Office space: Whether you have a separate office facility or are using a portion of your basement or a converted den, you can deduct the percentage of your home used exclusively for business purposes. Take this percentage off of your mortgage or rent payments as well as your utilities. If you have a phone exclusively used for business, deduct those phone bills.

3. Don’t forget business expenses: Keep receipts and good records of business travel and other expenses including office supplies, postage and shipping costs, dues, subscriptions, and anything else business-related, including computer software for your business and upgrades to your system.

4. Deduct child care costs: There are allowable deductions for daycare, nanny care, babysitting and any other type of childcare provided while you are working. Take the deductions allowable.

5. Set up a retirement plan: You should consider setting up a self employed qualified retirement plan (i.e. SEP IRA) not only for tax purposes but for the same of saving money for your retirement years. If you wish to start with more than $2,000, you can opt for a Keogh plan, which allows you to put away more into tax-deferred savings for your retirement.

6. Employ family members: You can deduct medical expenses for your entire family by employing them legitimately.

7. Defer income if necessary: Being self-employed, you can alter your billing slightly to defer income if you see yourself heading into a higher tax bracket.

8. Get money back from FICA: Being self-employed, you pay both the employer and employee portions of Social Security tax. You can, however, deduct half of these payments on your 1040 form.

9. Increase expenses if necessary: Just as you can elect to defer income, if you see that your income is high, you can make many more year-end business purchases to add some tax deductions before December 31st.

10. Get the right help: Look for tax help from someone who is familiar with self- employment, since your needs will differ from those of a company.

Source: http://www.nabaaustincentex.org/

It is important to have clean financial records as a small businesses so that you could present financial statements to  potential investors.

The reason for this is because I usually do not hear from business owners until they have really messed up their accounting system or they don’t have one and need me to create one. I can’t really say that it is a particular type of business that does this because I have helped various types of organizations and businesses.

Some of the types of businesses that I have assisted are churches, nonprofit organizations, retail stores, bakeries, daycare, construction and service types of businesses. Cleaning up financials or creating an accounting system takes a lot of work and patience. Bookkeeping or accounting can be a challenge but you have to have a passion for it to be successful. There is a since of  fulfillment once you have a clean set of books that your client can rely on.

Steps that I take before cleaning up financials or an accounting systems are as follows:

1. Ask the client information about their business in order to understand they type of business and structure. The use of a generic questionnaire will help to make sure you ask the most important questions.
2. Review their accounting system and/or financial statements for errors that stick out
3. Determine what needs to be done and how long so that you can quote the cost it would take to cleanup the client’s books
4. Depending on the time frame to complete the job, I would give the client an itemized list of what I would be doing

Does this sound familiar?

One of the most fulfilling things for me is when I am assisting churches with their bookkeeping and helping them to develop procedures.

Accounting for churches is much like running a business. It requires having a budget and a set of financials to present to the congregation. The budget is based on historical information and/or projections. Income is accounted for based on the type of giving and separated by the individuals that contributed. The individual information is most important for year end reporting to the congregation for their taxes. The expenses are separated into the various ministries and then the operating expenses such as supplies, utilities, etc. Churches have to pay bills just like everyone else.

Therefore, they should have a checking account and reconcile it monthly. The one difference between a church and a business is that they do not have to file a business tax return. Churches have to file payroll taxes for employees and sales tax if they sell products on a regular basis. I believe that some time in the future churches will have to file tax returns similar to non-profit organizations.

Does anyone have thoughts on this?

It is important to keep good records because you never know when you might need that information. Keeping records allows you to identify transactions from a source document or a system.  There are numerous ways to keep your records.  I have listed just a few below:

• Invoices
• Vouchers
• Receipts
• Accounting systems such as QuickBooks and Peachtree
• Transaction log.  This could be time consuming.

Most small businesses will keep invoices and receipts but after that they do not have them organized in order to create financials.  Financials are considered a Balance Sheet, Income Statement (Profit & Loss) and Cash Flow Statement in general.  That is where the accountant or bookkeeper comes in.  They are usually contracted to help create financials statements and to organize the business owners’ records.  You should have documentation to support information that is put into the financial statements and used for tax purposes.

What are some questions you have about recordkeeping?

When I moved to Texas I wanted to have a help small businesses with their bookkeeping part time. I tried a lot of things from working with people I just met to advertising. I soon realized that I was not going to get clients of that are true business owners and of course those that would pay. I had to get more experience and network more to get the type of clients I wanted to work with. 

Networking with strangers was not one of my strong points but I soon learned that it was necessary to meet people.  One of the most successful things that helped me to get clients was to join professional organizations. I have been the treasurer and financial officer of numerous organizations. Once they found out that I was an accountant they would seek me out to be an officer. It has been a very good experience and also it is an inexpensive way to advertise the services you provide.

What is the best way to get you name out to get business?