Expenses Incurred Before the Start of Business
All expenses related to the conduct of your business may be deductible. Consider opening your company checking account before you incur any business expenses, so your bank statements will serve as a backup for your business expenditures from day one. Keep a journal or ledger of all expenses incurred before business actually begins (examples: legal and accounting fees, fees paid to the Secretary of State, inspection fees for property, etc.).
Bank Accounts
A separate business checking account is essential for accurate record keeping in a new business. The account will facilitate consistent record keeping and enhance management’s ability to track the cash flow of the business by consolidating all deposits and disbursements into one place. All of the operating expenses of the company should be paid out of this account to keep business and personal funds clearly separated. Keep clear and detailed records of the nature of each cash receipt and disbursement.
Bank Reconciliations
A minimum bookkeeping requirement is to reconcile bank statements on a monthly basis. The time needed to accomplish this task is insignificant for most small businesses, and the process ensures that management is well aware of the cash flow situation of the business.
Deposits
Deposits should be made on the day cash is received, and records should be kept which identify the character of all sales and cash receipts. The IRS will leave it up to the taxpayer to prove deposits are anything other than taxable revenues. Your CPA can help you format a bookkeeping ledger for your company so that in your first year of business you will know what items you need to track separately.
Expense Reports
Expense reports are required by the IRS for all payments reimbursing employees for business expenses. An expense report is a simple form that need only list the date an expense was incurred, what the expense was for (business purpose) and the amount. Employees should be required to turn in receipts with their expense reports and the employer should keep the receipts and reports on file. It is also recommended that the employer’s procedure for reimbursing employees be formally documented in a written plan. We can assist you in formulating and establishing such a plan.
Mileage Logs
Current tax law provides for the personal deduction of unreimbursed business miles incurred by an employee. In general, this means that any miles traveled from your place of business to a job site or business meeting can be deducted. The IRS requires that in order to take this deduction, a taxpayer must keep a log of the business miles traveled. Without such substantiation, the IRS will disallow the deduction. We can assist you in formatting an IRS acceptable mileage log.
Software Packages
Another consideration is accounting software packages. Many of these are simple to use, provide pertinent financial information and can be obtained at a low cost. Software packages such as QuickBooks can simplify your bookkeeping process and can be installed by your CPA. Your CPA can also assist you with making routine and non-recurring bookkeeping entries in your computer system.
