Record Keeping (Part 3)

Record Keeping, continued

 

 

How long should I keep employment tax records?

 

Keep all records of employment taxes for at least four years. These should be available for IRS review. Records should include:

  • Your employer identification number.
  • Amounts and dates of all wage, annuity, and pension payments.
  • Amounts of tips reported.
  • The fair market value of in-kind wages paid.
  • Names, addresses, social security numbers, and occupations of employees and recipients.
  • Any employee copies of Form W-2 that were returned to you as undeliverable.
  • Dates of employment.
  • Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.
  • Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V).
  • Dates and amounts of tax deposits you made.
  • Copies of returns filed.
  • Records of allocated tips.
  • Records of fringe benefits provided, including substantiation.

 

How should I record my business transactions?

 

A good recordkeeping system includes a summary of your business transactions.  Business transactions are ordinarily summarized in books called journals and ledgers.  You can buy them at your local stationery or office supply store. 

 

A journal is a book where you record each business transaction shown on your supporting documents.  You may have to keep separate journals for transactions that occur frequently.

 

A ledger is a book that contains the totals from all of your journals.  It is organized into different accounts. 

 

Whether you keep journals and ledgers and how you keep them depends on the type of business you are in.  For example, a recordkeeping system for a small business might include the following items. 

  • Business checkbook
  • Daily summary of cash receipts
  • Monthly summary of cash receipts
  • Check disbursements journal
  • Depreciation worksheet
  • Employee compensation records

 

The most efficient and useful method of recordkeeping is to use a computer. QuickBooks is a software that is widely used but can be intimidating. However, many business owners only use the check register. Using the check register to record deposits and disbursements is easy and many useful reports can be created from entries in the check register.

 

The most important function of your records is to provide you with information that you need to evaluate your business as opposed to just providing the necessary information to prepare your tax returns.

 

This column is offered as a public service with the understanding that each person's tax situation is different; and that you should consult your CPA before taking any action based upon comments made in this article. Call me and I will be happy to explain my “CPA Quality Tax Preparation at H&R Block Rates”.  I can be reached at 825-2771.