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  • Records for IRS?

    What kind of records should be kept for the IRS in case of audit? I accept checks and cash. Later on I may start accepting credit cards. I'm a house call groomer sole proprietor who does not have employees. I don't have many business expenses.
    I know my chances of an audit are very slim, but just in case I'd like to be prepared.

  • #2
    Keep a log of all income- cash and checks noted.
    Record cash tips.
    Keep receipts of all expenses - mileage and parking and maintenance of vehicle; supplies; uniforms; phone records; meal expenses; schooling; licenses. Any expense incurred operating your business - make a record.
    Handwritten in a journal is still accepted.
    There are easy to use programs for your computer if you want to go that route. I her use an excel spreadsheet I set up for myself.

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    • #3
      I use the two page Barkleigh receipts, and every client gets one, I keep the bottom yellow copy which documents my income. I put every receipt in a fold-out file, the tabs are marked : Supplies, Equipment, Education, Gas/Propane, etc. At the end of the year, I print out the total amounts of expenses that each tab contains, plus my income. After my account gets done, I put his paperwork and the entire folder, marked with the year, up in my attic. The IRS can ask me anything from 2008 - present and I can document income and expenses at a flip of the folder. Sometimes the simple way is the best.

      Happy staying out of the Slammer

      Dolly's Barking Bubbles, LLC

      www.dollysbarkingbubbles.com

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      • #4
        I like this idea because it feels simple. My clients never ask for receipts and don't seem to want them. Is it okay if I just write up the receipts with client info and fee, but don't give the client the receipt?

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        • #5
          I was audited two times some years ago as a sole proprietor. There were some surprises and no I didn't get any big tax bills or penalties because I wasn't doing anything wrong. But I can give you some insights. They most often look at your checkbook and may even go over EVERY deposit into your checking account. What is this deposit? What is this deposit? What is this deposit? What is this deposit. Every deposit of the YEAR. For each deposit, WHO gave you that money, for EVERY deposit. Especially for those of you without a separate business only checking account, mixing personal and business in the same account this is really a BAD idea unless you are documenting the source of every penny in every deposit. Because say your neighbor bought your used sofa with a check or cash, and you put that money which is not taxable into your personal/business account, and you don't have all the written paperwork to back that transaction such as the neighbor's name and some sort of receipt saying sofa bought by Anne by neighbor, the agencies could say, no proof it was a personal so therefore it is likely to be INCOME to your buisness or you as a person. Every single deposit should have full detail where every penny came from to prove it was personal or business or it will be considered likely to be taxable income even if it wasn't. I tell you this from experience with others too. Businesses call this "cash receipts" documentation, and that does NOT mean cash the green stuff only. Cash receipts journals are essential in many audits especially of sole proprietors, and that means documenation for cash, checks and credit, debit cards.

          Deposit 3/2/14: $25 cash from so and so, $75 check from so and so, $100 debit card from so and so, $30 from a friend who wrote me a check paying me back for dinner because I used my credit card to pay for BOTH our meals, but we went dutch.

          No kidding, I have seen audits spent in large part on deposits, and some time on receipts for purchases. Be prepared to explain EVERY deposit. That is what accounting departments do in businesses, they document every penny deposited. This is the daily task for the "A/R" person preparing a daily "cash receipts journal" for every deposit down to the penny and backup copies of proof attached to the daily summary journal sheet, computer record if applicable too.

          I strongly suggest making this easier by always having separate business and personal checking to make it easier.
          Most questions regarding GroomerTALK are answered in the Board Help Talk Forum. Thanks for coming to our community a part of PetGroomer.com https://www.petgroomer.com.

          Comment


          • #6
            Thank you. That is interesting. I wondered about cash deposits. I don't have a business account, but I do have one account for cash deposits and one for checks. This is just because I only do online banking at one bank, with mobile deposits for checks. I'll start tracking each cash deposit.

            Originally posted by Admin View Post
            I was audited two times some years ago as a sole proprietor. There were some surprises and no I didn't get any big tax bills or penalties because I wasn't doing anything wrong. But I can give you some insights. They most often look at your checkbook and may even go over EVERY deposit into your checking account. What is this deposit? What is this deposit? What is this deposit? What is this deposit. Every deposit of the YEAR. For each deposit, WHO gave you that money, for EVERY deposit. Especially for those of you without a separate business only checking account, mixing personal and business in the same account this is really a BAD idea unless you are documenting the source of every penny in every deposit. Because say your neighbor bought your used sofa with a check or cash, and you put that money which is not taxable into your personal/business account, and you don't have all the written paperwork to back that transaction such as the neighbor's name and some sort of receipt saying sofa bought by Anne by neighbor, the agencies could say, no proof it was a personal so therefore it is likely to be INCOME to your buisness or you as a person. Every single deposit should have full detail where every penny came from to prove it was personal or business or it will be considered likely to be taxable income even if it wasn't. I tell you this from experience with others too. Businesses call this "cash receipts" documentation, and that does NOT mean cash the green stuff only. Cash receipts journals are essential in many audits especially of sole proprietors, and that means documenation for cash, checks and credit, debit cards.

            Deposit 3/2/14: $25 cash from so and so, $75 check from so and so, $100 debit card from so and so, $30 from a friend who wrote me a check paying me back for dinner because I used my credit card to pay for BOTH our meals, but we went dutch.

            No kidding, I have seen audits spent in large part on deposits, and some time on receipts for purchases. Be prepared to explain EVERY deposit. That is what accounting departments do in businesses, they document every penny deposited. This is the daily task for the "A/R" person preparing a daily "cash receipts journal" for every deposit down to the penny and backup copies of proof attached to the daily summary journal sheet, computer record if applicable too.

            I strongly suggest making this easier by always having separate business and personal checking to make it easier.

            Comment


            • #7
              Helping many groomers as a consultant over the years for their audits most of them came back and said essentially the same thing happened to them. The notice they received rarely if ever says they are going to look at your deposit records in detail. They had receipts for purchases handy (and NEVER hand them a grocery bag of loose receipts as some people do, instead sorted into file folders by vendor name), but had they not known about prepping cash receipts journals they would have looked very sloppy. You don't want to look sloppy with your records, again that is why businesses have accounting clerks who every day beautifully organize records. It does indeed make a difference.
              Most questions regarding GroomerTALK are answered in the Board Help Talk Forum. Thanks for coming to our community a part of PetGroomer.com https://www.petgroomer.com.

              Comment


              • #8
                I would seriously invest in a simple accounting software like Quickbooks. I am in business for myself, but I am an LLC. I will tell you that I hv a bookkeeping/management background before I became a groomer, but QB is a very-very simple program to learn and use. You could also use a simple computer spreadsheet program to help organize your bookkeeping records. Being a small business, I do not have a lot of paperwork, so I can keep all my account payable receipts & other documents in a yearly expandable file. Once the year is over & my financial reports are sent to our acct. I will bring that yearly file to our home for safe keeping. Past (and our current) accountants that I have worked with always told me to keep all records for a minimum of 7 years. You ALWAYS, always keep your tax returns & supporting documents. (Plus any employee files & payroll info - if you would ever hire someone in the future.) I do fall into a different category because my husband is a business owner so there for we have an accountant file our joint returns. The key, no matter what you do, is to have an organized system. That alone will reduce your stress if you would ever face an audit.


                Sent from my iPhone using Tapatalk

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                • #9
                  Thank you for the good information. Does anyone know if bank/credit card statements are considered to sufficient for confirming expenses, if the expenses are under $50?

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                  • #10
                    That is up to the auditor and the boss. The code probably doesn't say that. We were audited 10 years ago and true they asked about all the deposits and they asked for about 10 receipts but bigger ticket items, and we did not have one for about $700 for supplies. So we had a choice, disallow the expense and adjusted income higher and pay some taxes, or they gave us time to write the company and ask for another receipt and then come in again with the receipt.

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                    • #11
                      I know somebody that took a file of receipts not sorted in anyway and handed to agent and she said the agent didn't say anything but turned red and gritted her teeth and it became a bit of horror show, and it got much worse.

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                      • #12
                        I know someone that lost all of records for the audit of the year prior. He had backup for software but not receipts. So they allowed him time to write companies and get copies of about 50 purchases. Took hours and hours he said. Keep your records safe!+

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