Tax Corner: A follow-up to “Keeping track of income and expenses for a business”

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By Neil Seidler, CPA, CMA

Dear Neil,
I scan all of my invoices and receipts and keep them on my computer and destroy all of the paper copies in order to save space and not have a box of papers in my RV. As well, I only use one bank account for all of my personal and business deposits and payments. I think that the saving in bank fees makes this worthwhile. Your comments?

Neil’s reply:
You want to keep your records easily available and verifiable for the IRS should they decide to review (audit) you or your business income and expenses. You can either scan your sales invoices and expense receipts and store them electronically, or store them in a file or file box.

You should have a separate bank account where you deposit all of your business income and from which you pay all of your business expenses, which will make their job much easier and faster. During an audit the IRS will likely want to take a look through your other personal accounts, but if they see that all of your business transactions are handled in a separate bank account, that process will also be easier. The last thing you want or need is for an auditor to decide that, as everything is running through one combined bank account, it looks like you’re trying to deduct personal expenses as business expenses.

If you’re doing your accounting and/or taxes yourself using one of the accounting and tax preparation software packages, it is also much easier to make mistakes if you’re using only one bank account. If you keep a separate account for your business, then everything running through that account is related to your business and you don’t run the risk of entering something into your business expenses that is actually a personal item, or missing something that is a business expense and not deducting it. Also, your bank’s service fees for your business account are deductible as an expense.

If you’re taking your records to an accountant to prepare your business income and expense statement and your tax return, then you are making their job much easier if there is a separate bank account. Again, they will know that everything going through that account is related to your business. They won’t have to go through your personal account and try to figure out which items are business related and which are strictly personal. You’ll save them time, which in turn will save you money on their accounting fees.

I’ve used this system for clients over the years and it seems to work very well. You’ll also have a better understanding of how your business in doing financially as you can monitor your business bank account balance. Is it going up or down? Are you taking money from that account and putting it into your personal account, or are you having to deposit personal money into that account to cover the business expenses? If there is just one account, that simple test is not available.

The size of most small businesses run from an RV makes this a great system that doesn’t take up a lot of storage space. As your business grows, or if you’re running a major business enterprise, obviously you may need to do things a little differently. But for the most part, for most small businesses, you can’t beat a simple system like this.

If you have any other questions or need help in getting set up, send me an email and I’ll be happy to assist you.

We welcome your questions and inquiries. If you have tax-related questions, or any other questions that we may be able to address, please email us or comment below and we’ll try to answer them in a future article. You can email me at TheRVTaxGuy@gmail.com .

The material presented here is for informational purposes only and is not intended to
provide, and should not be relied on for tax, accounting or legal advice. Readers should
consult their own tax, accounting and legal advisors to discuss their own personal
matters.

Neil Seidler, CPA, CMA, has served businesses and individuals across the USA and Canada for 35 years. As an avid RVer and recent full-timer he has a unique perspective on RV tax issues.

Read Neil’s previous posts here.

##RVT926

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Kevin
11 months ago

Speaking as a former IRS employee, keep supporting documents. Scanned copies are fine. At least in my 30 years experience. A spreadsheet and copies will make the examiner’s job much easier and reduce or eliminate the questions. If you have questions or concerns consult with a competent CPA.

Ralph Pinney
11 months ago

Great advice. I will be starting a virtual business soon from the road and plan to use a separate Credit Union for the business activity.
Also, I suggest you use google docs to store your scanned documents rather than your PC or laptop. Another option for your document protection would be regular on line backups to the cloud.
Merry Christmas and happy holidays to you.

John T
11 months ago
Reply to  Ralph Pinney

Google will go through your google docs to collect your personal information to sell to advertisers. Use a secure site such as dropbox.

LindaH
11 months ago
Reply to  Ralph Pinney

I use Dropbox business account that is HIPPA compliant in an effort to keep Google out of my business records.