There are no hard and fast rules, but there are some general guidelines out there for how long you should keep your biz records:

1 Year — Duplicate deposit slips, Purchase orders, Correspondence with customers & vendors

3 Years — Cancelled checks, Paid vendor invoices, Expired insurance policies, Employee payroll records

6 Years — Sales records & invoices, Bank statements, Auto mileage logs, Travel & entertainment records, Employment tax records

Forever — Copies of tax returns, Tax/legal correspondence, Contracts/leases, Real estate records, Corporate minutes & stock records

Generally, retention guidelines are the same for computerized records as for paper copies.  But it’s important that you can retrieve what you need and that the IRS can access those records.  In other words, your computerized records need to be upgraded if they’re in an obsolete format.  And always remember to keep off-site backups!!

Nothing strikes terror in the heart of the small biz owner quite like finding a letter in the mailbox from the IRS! In an effort to help you avoid that unpleasant scenario, here are some common pitfalls to avoid if you don’t want the IRS as your new pen pal!

• Include all your income on your tax return! If you received a Form 1099-MISC from anyone, be sure this income is on the return, in the right place, or you will receive a notice.  Even if you did not receive a 1099 for work you did, you are required to report the income.  The IRS receives copies of 1099s from the payers and these are checked against the income you report.
• If you made quarterly estimated tax payments, double-check the amount and the dates the taxes were paid.  Forgetting to include a payment is common, especially the payment made in January for the fourth quarter.  Remember the first payment of the year is sent in April, followed by June and September payments and concluding with the January payment for the fourth quarter of the preceding year.
• If you underestimated the amount of your taxes and are unable to pay the full amount, be sure to file the return on time anyway.  You can request to pay the remainder in 120 days or with an installment agreement.

A few minutes of extra time reviewing your return will pay off in peace of mind and help you stay off the IRS radar screen!

Recently, I found a really neat product for accumulating your tax documents and receipts throughout the year, so you can always be ready for tax time.  It’s called FreedomFiler:

You can have one folder for all of your income statements, or numerous folders for ”Income/W2,” ”Business Income,” “Rental Income,” and so on.  You can have a single folder for “Itemized Deductions,” or one for “Medical Expenses,” one for “Charitable Contributions,” and one for “Unreimbursed Business Expenses.”  You can make the system as simple or detailed as you like.  The beauty of the system is that no matter what paper you find, there’s a folder for it.  And at the end of the year, everything is ready to hand over to your tax preparer.  Check it out!

Thanks to Senator Olympia Snowe of Maine, there is a movement in Congress to establish an optional home office deduction for small business owners.  According to the SBA, even though 53% of small businesses are home-based, few owners take the home office deduction due to its complexity and strict requirements.  The Home Office Tax Deduction Simplification and Improvement Act of 2009 would establish a straight-forward, standard deduction that could be used instead.

Perhaps the best part of the Act is that it eases the burden of proof in claiming the deduction.  If your business is “virtual” like mine and you don’t actually meet clients in your home office, the legislation will allow you to take the deduction regardless of whether your clients are physically present in your office.  Also, making the occasional personal call or paying personal bills at your desk would no longer disqualify you from the deduction.

Finally, our tax laws are starting to catch up with how we actually live our lives!

It would be a perfect world if everyone we worked with could be trusted 100 percent, but being too trusting can lead to employee theft or fraud.  There are some simple steps you can take to protect your business:

1. Use a password!  Your QuickBooks or other accounting software should have an Administrator password at a minimum.  Even better, set up a separate user account for each person accessing the software and have everyone set their own password.
2. Review your books! Even if you’re not a “numbers person,” you should learn enough about reading a Profit-&-Loss report and a Balance Sheet to be able to know if something is amiss.  There are seminars offered at your local SBDC or community college if you need to learn how to read these basic reports.
3. Make your bookkeeper take a vacation!  At least once a year, make your bookkeeper take a week off at the end of a month.  Let someone else close the month and reconcile the accounts.  You never know what you might find!  If you don’t feel comfortable doing the reconciliations and reviews, hire your tax preparer or a Virtual Bookkeeper for the assignment.
4. Get a stamp!  Purchase a “For Deposit Only” stamp for your business account and stamp all incoming customer checks with it.  This can prevent someone else from cashing your customer’s check.
5. Open your statements!  You, the business owner, should be the one to open the bank statements.  Always make sure you receive them unopened.  Then review them for any unusual payees or amounts.
6. Lock up your checks!  Don’t leave blank checks laying around.  Make sure you keep track of voided checks, too.  Then, be sure to keep track of check numbers and investigate any missing checks.

These simple tips can help you sleep better at night and help prevent the theft or fraud that could seriously damage your business.

The IRS posted a new “Summertime Tax Tip” for entrepreneurs: the Top Seven Tips for Starting a New Business.  The full article can be found at:

http://www.irs.gov/newsroom/article/0,,id=172970,00.html

I love the fact that three out of the seven concern bookkeeping and taxes.  So many new business owners get wrapped up in their new enterprise and lining up new clients, they forget that Uncle Sam is going to want to know a few things about their business next April!