IRS Audit, IRS Audit Process

Bookkeeping!

November 29, 2012 - IRS Audit, IRS Audit Process

When you see that word do you smile knowing it is one of the few words with three double letters in a row? Or does it make you shudder? Do you think, oh, “I’m not good with numbers, I’m not good at math.”?  Do you realize that is just a mindset? You can change your belief about yourself and your abilities. Numbers don’t lie. When you know your numbers you can make better decisions. You can make better business choices. Are you spending too much money on one thing and not enough money on another? Are you devoting enough money to marketing to help your business grow and thrive? Are you wasting your money on something else that is not returning enough of a benefit? All of these questions can make your head spin. But I have some great news. And in line with Bullet Proof Your Taxes, good bookkeeping can help you Bullet Proof Your Business, too. I heard it said that  building a business is a lot like building a house. You need planning. And planning to set up your bookkeeping system for profits can help you protect against a tax audit, too.   Record Keeping Methods There are many ways to keep your books. You can use paper and pencil. You can use an excel spreadsheet. You can use an accounting software program. Quicken is good for your personal checkbook. QuickBooks is good for your business. And if you want your accountant to help or review your entries, you will want QuickBooks Pro. With the Pro version, your professional can take what you entered, review it and fix a mistake you might have made. It’s like you have someone working side by side with you. You enter your data and they review your results. They will give you a set of books you can be confident in. You can set up Quicken to easily to accept the income and expense data you enter. It will provide you with monthly, quarterly and annual financial statements.   Important Reports Your Income Statement  (or statement of income and expenses) and your Balance Sheet (or statement of assets, liabilities and equity) are they key to your business success.  Income is money IN. Expenses are money OUT. Assets are what you OWN. Liabilities are what you OWE. Equity is your VALUE in your company. Did you know that “double entry method” bookkeeping does  NOT mean you keep a double set of books. Keeping TWO sets of books is illegal and really means you want to cheat someone somewhere. Double entry means there are two entries for each transaction that balance each other.   Business Banking Do you balance your checkbook anymore? With online banking, fewer people do that now.  Your check register allows you to keep track of your money in and your money out. When you make a deposit to your account, that is money in. When you write a check from your checkbook that is money out. And your check register uses just single entry bookkeeping. If you are in business you ALWAYS want to have a separate bank account for your business. Do not mix (or co-mingle) business and personal accounts. If you use a credit card, have a credit card for you business use and a different one for your personal use. This will help you leave a cleaner audit trail. This audit trail is something the IRS will want to follow if they want to look at your business activity.  Remember, the IRS will “follow the money.” It is important to keep that business audit path clear of personal activity. Use the KISS system. Keep it Simple Sweetheart! ? And keep it accurate!   Always to your lowest legal tax, Nellie T Williams, EA     PS. Listen to my Rock Star Radio Network interview with QuickBooksPro Advisor, Barbara Starley, CPA, on my BulletProofYourTaxes show recorded on November 16, 2012. To hear more: http://rsrn.us/taxes