Tax Tip Thursday

A recent trend we’re seeing with our small business clients is poor accounting records. So, let’s talk about that. If you are a small business, this applies to you. It doesn’t matter if you are a sole proprietorship or a corporation!

Whether you have a home based business, small store, a consulting business, are a contractor, or are someone selling widgets, all businesses must file tax returns. This means you need to keep books or at least some kind of documentation so that you can create books at a future date. I have had several clients come to me in the last couple of months with virtually no records at all… and not just for one year. Some more like 10! They had no invoices, no receipts, and in some cases, not even any bank or credit card statements.

How Big is the Problem?

It’s a pretty big deal. We can help you at The Mad Accountant, but it won’t be easy. The only way for you to build your books without documentation is to use bank and credit card statements. Keep in mind that these will not support any of your deductions if you get audited, but you can hope for the best. This is a cumbersome process and involves both some guesswork and a lot of research. We have gotten very good at it over the years, but it is still a very tedious process. Especially if we have to go over 10 years of bank statements!

Our approach is to set up a QuickBooks account and then put the information into QuickBooks on a monthly basis. As I said there is definitely some guesswork involved, but years of experience help us make educated guesses. The majority of the deposits are going to be your revenues. The expenses are usually easier to deal with as there is some information about the vendor on your bank or credit card statements.

It takes a long time, costs you a lot of money, and leaves you with unsupportable financial statements and tax returns. Personally, this would leave me very nervous. As a small business owner, the very minimum that you can do to help yourself is at least maintain invoices for all the products or services that you sell and keep your receipts for expenses, even if just by year. This will be a much better option than nothing! So if you don’t do it today and you know you are a person who is going to procrastinate getting your books and taxes prepared, then do yourself a favour and at least keep all the supporting documentation so it’s easier when you’re forced to do it.

Or, better yet, you can sign up for our fixed price monthly bookkeeping package and you won’t have to worry about that anymore! We can offer you peace of mind. I called one of our clients the other day to talk about their books and at the end of the conversation he said he is so glad that we are taking care of these for him. He sleeps better at night not having to worry! Best compliment I could receive!

Give Us a Call.

We are happy to help you! Even if you have a decade of just bank statements. We can help you work through it and build some books. We don’t judge! Give us a call or make an appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.