Many small businesses struggle with maintaining their corporate records. Find out how to make this an easy process so that you can focus the majority of your time and attention on running a successful small business. Learn the difference between legal and financial records, why you should keep them, and the easiest processes for maintaining them.
Corporate RecordKeeping is a must for Small Businesses in California
Many people start a business because they have a passion for a certain product or service that they are offering to their clients. Maybe they love baked goods so they start a bakery. Maybe they love graphic design so they start a design service. But as their businesses gets off the ground they find that there are many legal and financial requirements surrounding owning and running a business that are not at all connected to their passion which initially inspired the creation of their company.
This can create a real nightmare for many small business owners here in Orange County, California if they avoid or neglect the issues surrounding their recordkeeping. In California, there are certain recordkeeping requirements that businesses need to adhere to and penalties for failure.
Financial Corporate Records and Legal Corporate Records
Companies are required to keep financial corporate records and legal corporate records. Financial records are kept so that a business can correctly file taxes. Legal records are necessary so that a business can prove that it has been functioning according to how the law stipulates it to function. To protect your company you must have an effective record keeping system for both types of corporate records. If you don’t have a good system in place this can cause undo stress on you, your operation, and your staff. It’s just not worth the pain.
There are many businesses in California that are unaware of the rules and regulations that apply to the requirements of keeping financial records of expenses and deductions. The following will lay out some of the important vital information your company will need to know regarding maintenance of your corporate records, including what type of companies need to keep records, the advantages to having a good system for recordkeeping, which exact corporate records should be kept, how long to keep specific documents, and why you’ll need a professional to help you with these many tasks.
Do What You Do Best. Leave Corporate Records to the Experts
At the end of the day business owners need to stay focused on what they love about their business. Companies don’t want to be laid low by something as avoidable as maintaining improper corporate records. That is why seeking really good legal advice from a small business law firm, offered at a price that you can afford, and maintained accurately and consistently, is absolutely essential for your business’s future.
Who Should Keep Financial Records?
All businesses in California are required to pay taxes and therefore are obliged to keep financial corporate records. In order to prove why you claim what you did on the return, you as a taxpayers should be prepared to provide the appropriate documentation. The burden of proof is always on the taxpayer. Your business needs to keep records in order to prove certain expenses and to deduct them. Moreover, deductions are only allowed if they are ordinary and necessary as determined by the tax code, so keeping accurate records of these deductions is extremely important.
Why Do You Need to Keep Good Records?
Properly kept financial records help prepare and support taxpayer tax return information. Good records are documents that adequately support the deductions taken on your tax return. All taxpayers have the right to take all the deductions that the law allows, but they need to have the documents to prove their validity.
Additionally, whether it is business or personal, properly kept records can help a lot when you apply for a loan or for supporting an insurance claim.
If corporate records are not kept properly, your business might suffer from missed deductions and higher taxes. If you get audited, poorly kept records can result in fines due to underreported income and unsupported deductions. Avoid paying higher taxes and other penalties by keeping your corporate records maintained properly.
What Financial Records Need to be Kept?
If a taxpayer does not have or lacks good records, he or she is not adhering to the rules and regulations that have been established by the law. The following are a few examples of records that are needed to support expenses and deductions:
1. Payment Records.
All businesses should have records of payments made. Of course, you need to have records of payments that are business related separate from those that are for personal purposes. You should be able to provide either a cancelled check or a credit card payment to show that a specific payment was made.
These documents come along with the payment records. Invoices will be cross-referenced with the business expense.
Many businesses keep receipts but fail to label them. Besides keeping receipts that itemize the purchases and payment method, you should also label them with other important details such as date that the transaction was made and what the purpose of the purchase was.
4. Mileage Logs.
Mileage logs are another important record to keep. Provide mileage logs during an examination by the IRS. Federal tax regulation has specific requirements for mileage records.
5. Charitable Contributions.
Whether it is cash or non-cash, you should keep record of your charitable donations. The law allows deductible contributions given to qualified exempt organizations in California.
How Long Should Corporate Records be Kept?
How long a document should be kept depends on many things, but generally California’s minimum statute of limitations is four years. It is imperative that you keep your records properly. This may be needed as long as is necessary to prove the income or deduction on your tax return. The statue of limitations for specific tax returns vary. Knowing the precise requirements for holding onto documents in particular situations is not common knowledge, which is why consulting with an expert on this matter is so vital.
Specific Requirements on How Records Should Be Kept
There are actually no specific requirements in keeping your business records. Taxpayers may choose whatever way they want and whatever way works for them. Whether it is through an electronic system or a manual record keeping system, the important thing to remember is that the records should show clearly a business’s income and expenses.
For many small businesses in Orange County, California, checkbooks are the main source of their entries. It is imperative that you keep business accounts separate from personal accounts. When business and personal transaction records commingle, a lot of problems may arise. This is also the reason why you need to have a separate bank account for your business.
Corporate Recordkeeping by Reliable Professionals at a Small Business Law Firm
As mentioned earlier, financial records are not the only corporate records that a company should keep. Legal records are just as important. Keeping all your corporate records organized can be a very tedious task. In fact, you need to spend time and effort in order to make sure that all your necessary records are kept properly. It would be very helpful for your business to have a corporate lawyer to help you properly keep your legal corporate records. There are various corporate attorneys in Orange County, California.
The lawyers of Incorporation Attorney are among the most competent legal advisers in Orange County, California. Besides legal corporate record keeping, they also assist in incorporating companies, forming business entities, and all legal issues related to small businesses. Having legal counsel always available can help protect yourself and your business from unnecessary problems in the future. For more information about Incorporation Attorney and their legal services, contact them at +1 (714) 634-4860.