Do you understand why record-keeping is so important (whether you’re in business or not)? No? Well here is your complete why, what and how of record-keeping. Learn why you should do it and exactly which documents you should be keeping in today’s blog! This blog will assist you whether or not you are a business owner.
WHY SHOULD YOU KEEP RECORDS?
Because you have to – it’s the law! We are all obliged to keep our records, personal and/or business-related by law. Of course, there are other reasons why you should keep records and these are covered later in the blog.
FOR HOW LONG?
In general, you need to keep records for 5 years after they were prepared, obtained or a particular transaction completed, whichever occurs latest. There are variations to this requirement so refer here to read more.
WHAT DO YOU HAVE TO KEEP?
Basically, you need keep records relating to any income you have received and details of any expenses you have incurred in relation to receipt of this income. The types of income and expense records you need to keep depend a lot on your personal situation and how you obtain your income – review the table below for more information. Note: always obtain advice from your tax agent or accountant about how the following may apply to your situation.
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Any of the above that may apply to your personal situation plus the following:
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Besides it being the law to keep your records, there are other reasons why you should do so. Here are a few of them:
- Assists your Tax/BAS Agent to complete your returns more efficiently and quickly which means that your accounting costs will be reduced i.e the more organised you are, the easier our job becomes which means we will charge you less – yay!
- Allows your Tax/BAS Agent to spend more time on providing you with personal and business tax advice and financial planning as opposed to just sorting out your paper mess!
- Ensures that you don’t miss out on potential tax deductions – you can’t make a claim for an expense that you’ve forgotten about because you didn’t keep the receipt!
- Makes life so much easier for your bookkeeper – again a money-saver for you.
- Helps you find documents you need quickly.
- Helps you keep track of your business health e.g. keeping track of debtors and creditors and stops things from falling through the cracks.
- Assists you in being able to demonstrate your financial position to banks and other lenders if you require a loan or are trying to sell your business.
- If you need to make an amendment to your BAS or tax return, your records will assist you to do so.
- If the ATO request to see certain documents to verify your claims, you will be able to do so easily.
- If you get audited by the ATO, good record-keeping will make the process so much easier and may even help to reduce potential penalties.
To help you get started with good record-keeping habits, here are some useful tips:
- Choose a record-keeping system that works for you. This can be electronic or paper-based. I recommend an electronic system. See my blog on how my electronic (paperless) system works.
- If you are running a business, definitely purchase an accounting software program. Such a program will become the foundation for much of your business records and is acceptable by the ATO as evidence of income and expenditure.
- Get yourself a good bookkeeper to assist you in operating the software to ensure that your business records are set up correctly.
- Choose a day or half-day to organise your records, enter data into your software and file away paperwork etc. – the more you do it, the easier it will become.
- Make sure you document your record-keeping system so that others may access documents etc. in the event that you are unable to do so.
- Always ask suppliers for tax invoices at the time of purchase. Remember, no receipt = no deduction and/or GST credit.
- Make sure that you enter data correctly into your software as mistakes can be costly. Again, a good bookkeeper will assist you here.
- Keep personal and business records separate i.e. don’t use personal bank and credit card accounts for business transactions and vice versa.
- Don’t wait until things get out of control. Get on top of your record-keeping today! If you need help, invest in the services of a good bookkeeper. This will be money well spent!
NEED MORE HELP?
The ATO have written a document to assist small business owners with record-keeping. Download here: Record-Keeping for Small Business