Two questions that network marketers often ask are "What business records do I have to keep for IRS?" and "What type of record keeping system should I use in my business?"
Operating a business without paying attention to record keeping is a disaster. You might think "Who cares – I hate bookkeeping and tax details, if my business needs enough money, it doesn't matter anyway… I will only pay someone else to clean up my records later!"
Not so fast, my friend! A good record keeping system is essential for preparing a tax return. If you accidentally prepare a tax return, you not only have to pay too much tax, but you also have to add terrible IRS audit risk. If the auditor finds that there are not enough records or major errors in your books, it may result in a discount, plus a large fine and a fine that may force you to go bankrupt and eliminate your life savings.
The good news is that the IRS does not specify a specific system to keep records that must be used. No two companies are similar, so there is not a uniform way of keeping records. Any system is fine, as long as it depicts the real situation of your income and expenses.
You can save your records manually or using your computer.
The manual system is suitable for smaller home businesses, requiring only $10 to $20 in ledgers and some Manila folders per year. I recommend a weekly bookkeeping booklet where you can record your income and expenses on a regular basis and then update the annual total by cost category at the end of each week. In this way, you can always get the latest statement of income and expenses, or a “profit and loss” report. In addition to the weekly record book, a check register, an add-on machine, a mileage record and a nearby accordion file are used to submit the receipt. Organize receipts by category; advertising, travel and entertainment, mobile phones, etc.
A computerized record keeping system works the same as a manual system, but the computer automates the process. You can use a spreadsheet to record your remaining earnings and bonus checks, and use a separate column to categorize your expenses.
A quicker way to categorize expenses is to use software programs such as Quicken or QuickBooks. These programs are like checkbook registrations, and are entered for each income and expense transaction. If you do have some basic accounting knowledge, you can quickly print a profit and loss report. But be careful. Software programs are not a substitute for a basic understanding of debt and credit. Often, the year-end reports I see from accounting software programs are best summarized in the "Garbage in-Garbage Out" statement.
If you are satisfied with your computer and have basic bookkeeping expertise, it is good for you! However, you do not need computer software to maintain accurate records. At the very least, classify your receipts [cars, office supplies, advertisements, etc.] as Manila folder or accordion files and total them by category at the time of tax payment. Bind machine tape to each folder or stack of receipts. Any system can do it as long as the system accurately depicts your income and expenses.
The network marketing business owner should obtain a copy of the IRS publication 583 “Entrepreneurship and Keep Record” to obtain more detailed information about the IRS record retention requirements.
Jim Flauaus, President and CEO of Anchor Accounting & Tax, is an online marketing/MLM tax expert. He contacts home business owners and network marketers across the country and around the world by phone, email and fax to help them plan and prepare income tax returns.Ultimate Cleaning Business Package, Click here!