How to Keep Records for Tax Time
What is it?
Record keeping is the practice of saving and organizing proof of your income and expenses. This includes bank statements, receipts, invoices, and sales reports. Think of it as building a 'paper trail' that proves your numbers are real.Why is it important?
If you are ever audited, the tax authority will ask for proof. If you can't prove an expense with a receipt or record, they can disallow it, meaning you'll owe more taxes plus penalties. Good records also make filing taxes fast and cheap, rather than a stressful scramble.How to Do It:
- Separate Your Finances: This is rule #1. Open a dedicated business checking account and credit card. Never mix personal groceries with business ad spend. This makes tracking 100x easier.
- Go Digital: Don't keep a shoebox of receipts. Use an app (like Dext or the Shopify app) to snap photos of physical receipts. For digital receipts, save them to a dedicated Google Drive folder organized by month.
- Monthly Reconciliation: Once a month, spend 30 minutes matching your receipts to the transactions in your bank account.
❌ Do's and Don'ts
- Do: Keep records for at least 6-7 years (check your local laws).
- Don't: Rely solely on your bank statement description. 'Amazon' could be a personal gift or office supplies. You need the actual invoice to prove it was a business expense.
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Curriculum: 7.4 - How to Prepare for E-commerce Taxes (Difficulty: Advanced | Path: Scale)
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