Loan List
You will need to keep track of the monies that are entering your business and from where. When you make a loan to the business it needs to be tracked. The bank wants to get their money back when they loan you money and you should want the business to return that money back to you as well. The money you loan to the company should be deposited into your business bank account, and the expenses that the loan was needed for will be recorded in the business checking account.
Many times I will have a provider complain that they are not being treated as a business person and instead are being treated as a baby sitter. Keeping accurate records and acting like a business requires you to have good records. Be sure to keep strict separation between personal expenses and business expenses. By doing this you will be treated as the professional that you are, and will give you piece of mind when tax time or decision time arrives.
Lastly, Direct Expenses
All direct business expenses should be written from your business checkbook. I have found that using a credit card has been very helpful. If you use a credit card use it for business purposes only, and pay the balance monthly, you will be able to track expenses easily. Debt is a burden that will many times destroy a new business. Good record keeping will allow you to better keep track of the monies coming in and going out. You should keep the receipts associated with the expense and organize them by category, not the month. The IRS wants to know the amount of supplies, not January, February, etc. This will allow you to easily assemble the information for the tax return or financial statement purposes.
Whether you decided to use a computer with the many programs that are available for record keeping or not, the overall goal doesn't change. You need to systematically assemble the information in a way that you can make decisions from, and also comply with the laws of your state and federal government.
I thought it would be helpful to take a look inside what the IRS auditor would be looking for. In 2004 the IRS published an audit guide for child care centers. This publication is used by auditors to get up to speed on a certain industry segment. If you know what they are looking for you can better be prepared when the time comes. It is too late to prepare after you are selected for audit, because the audit will happen between two and three years after the year that they are auditing.
The IRS has given its auditors specific guidance that lets you know what issues the examiners are looking for. This is not an absolute list because the individual auditor can ask for anything they want to look at but this is a great starting point.
From Child Care Providers Audit Techniques Guide
1. Be prepared to discuss the business history including the starting date, a brief description of a typical days activities, and internal controls for income and expenses information
2. If you are taking a deduction for the use of your home, provide a floor plan, blueprint or other significant documents to reflect the square footage of the residence. Provide the escrow and/or closing statement to verify the cost of the property. Mortgage company statements showing the paid property tax renting your home provide substantiation of the expenses and a copy of the rental agreement.
3. Provide copies of Federal Tax Returns for prior and subsequent years, prior Federal and State audit reports, any related returns: partnership, corporation, or employment tax returns and any Forms 1099 filed and/or received.
4. Provide journals, ledgers, records, notebooks used to keep a record of clients and the amount they paid (weekly, monthly, etc)
5. Provide all bank statements, business and personal, for the period beginning _______ and ending _______.
6. If you are participating in the food program, provide copies of the reimbursement statement, name and address of the food sponsor, attendance and meal count record, and time record.
7. Provide copy of any benefit or retirement plan.
8. Provide substantiation in the form of canceled checks, receipts, statements, or invoices for expenses identified for examination.
9. Provide all business licenses, approvals, registrations, and certifications.
When facing an examination by the IRS, it is best to provide the auditor with exactly what they ask for and nothing more. Answer only the questions they specifically ask and avoid offering additional information that they don't specifically ask for. You don't want to expand the scope of the audit by offering information that will lead to additional areas of inquiry. Do not go to the inquiry alone and preferable bring your tax advisor to assist you. If the tax advisor has complete knowledge of your return he/she may prefer to complete the audit without you present. This normally avoids the expansion of the audit and allows it to proceed to a conclusion as quickly as possible.
If you take the process of record keeping one step at a time and do one thing every day you will stay on top of the work and benefit from the wealth of knowledge that can be derived from that information.
(c) CG Groth 2007
About the Author:
The Daycare Diva, Christine G. Groth, is the creator of The Guide to Instant Daycare Profits. To learn more about this step-by-step program and to sign-up for her FREE How to Start a Daycare tips and articles, visit
http://www.ExpertsAtDaycare.com
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821
Date Published :
Jul 11 2007