Business Financial Records

Record keeping is probably the least interesting part of your business, but it is one of the most important. During this time of year – tax season – I meet business owners who are scurrying to scrape together their financial records to file their income taxes. They don’t realize that they need up-to-date and complete financial records all year long.

Many businesses fail because they don’t have the necessary financial information to make decisions that are right for them and identify financial warning signs before they become real problems. Recordkeeping may be boring, but good financial records are key to monitoring progress, in addition to getting organized to file all required income tax returns.

Here are four recordkeeping tips to get you started:

  1. Maintain separate records and bank account for each business and for personal transactions to identify income that derives from your business vs. personal (e.g., investments and wages). A separate business account also makes it easier to reconcile business financial activity between the bank and your financial records.
  1. Business income should be recorded as it is received. Income should be supported by invoices, bank deposit slips, online receipt records, cash register tapes or other documents that show the source of the income, the amounts and the dates received. Generally, income is taxable when received, not when the invoice is sent, or funds are deposited.
  1. Business expenses must be documented to prove the amount, date, business purpose, and expense type in order to deduct them. That proof, or documentary evidence, should consist of a disbursements register, canceled checks, and/or invoices. Additional evidence is required for travel, entertainment, gifts, and auto expenses.
  1. “Mixed use” assets, such as vehicles and computers, must be allocated between business and personal use to determine the amount that is deductible for your business. For vehicles, use an app or other method to track the mileage and keep a report. For other assets, like a cell phone, use reasonable judgement to determine the business portion. 

You didn’t start your business to do financial recordkeeping, but it’s one of the most important part of monitoring the progress of your business and getting organized to file your income tax returns. Up-to-date and complete business financial records are key to knowing what’s going on in your business. And yes, the IRS requires business financial records. 

Believe it or not, the IRS provides a lot of tips for keeping business financial records. A good place to start is their website IRS Publication 583, Starting a Business and Keeping Records, has even more information at

Monitoring Nonprofit Finances

Managing your household or business finances is a big job. Your financial decisions impact the financial health of your family’s or business’s future. Sure, those financial decisions have an impact, but we’re talking about your funds. It’s an entirely different story when decisions are being made about funds entrusted to you by community members and other donors.

Managing nonprofit finances is an even bigger job. One significant part of that job is fiduciary responsibility for donor funds. Fiduciary responsibility involves treating funds entrusted to you with duty and care, and to only use them to support the nonprofit’s mission. Regularly monitoring finances is one way that a nonprofit fulfills its fiduciary responsibility.

What does “regularly monitoring” mean? It starts with focusing on these three areas:

  • Budget vs. Actual Performance

Every month, the nonprofit’s year-to-date budget should be compared to actual financial performance. Variances between budgeted and actual performance should be explained, especially for key income and program expense categories. Identify why variance from plan are occurring and take remedial action, as needed. Assess the potential for overreliance on one individual funding source, indicating the need to diversify.

  • Cash Reserves and Liquidity

A monthly review of checking and money market account balances should be performed to determine whether cash reserves are adequate. The cash reserves target should be based on the amount needed to cover operating expenses without any funds coming in and without liquidating any investments. Other methods to assess the nonprofit’s financial health are to assess current assets vs. current liabilities and total liabilities vs. unrestricted net assets.

  • Long Term Objectives

Once or twice a year, nonprofits should monitor whether the financial aspects of long-term objectives are being met. Long term objectives are often stated in the organization’s strategic plan, and may also be reflected in the annual budget, Investment Policy and Board Resolutions. Monitoring activities should address whether long term objectives are on track to be met within the defined time frame. Remedial action should be taken, as needed.

Nonprofits have fiduciary responsibility for donor funds to use them in support of the mission. Monitoring finances as a nonprofit involves focusing on budgeted vs. actual performance, cash reserves and long-term financial objectives. Focusing on these three areas gives nonprofits the information necessary to fulfill fiduciary responsibility and make prudent financial decisions. 

Is It Too Late to Find a Tax Preparer?

Tax filing season is here! Time to gather all your tax documents, hunker down and file your income tax returns before the deadline, April 15th. It’s a good idea to get started soon, especially if you think that you will need help from a tax preparer. Those folks (including me) are pretty darned busy this time of year. 

Piece of paper that says "TAX" with hand holding pen
Photo by rawpixel on Unsplash

When you are running against the tax deadline and you just can’t figure out how to file your return yourself, what can you do? Well, you can ask friends, hit the Internet or head to the local tax preparation office. But how can you feel confident that the tax preparer you find is qualified and can do what’s best for you (within the rules, that is)?

When “shopping” for a tax preparer, taxpayers should ask these three questions:

  • How Do You Keep Up with Tax Law Changes?

Tax laws are constantly changing. Some changes are major, as we saw two years ago with the Tax Cuts and Jobs Act. It’s important to work with a tax preparer who keeps up with all those changes, so you don’t have to. A qualified tax preparer will describe attending conferences, webinars, or other methods to stay current.

  • What Experience and Credentials Do You Have?

Tax preparation is an unregulated industry where anyone can participate, so asking about years of experience, training and education is essential. Preparers with professional credentials, such as a CPA or Enrolled Agent (EA), are required to complete annual continuing education requirements and to follow ethical and professional standards. 

  • How Do You Communicate with your Clients?

Does the tax preparer meet regularly with clients? Are meetings in person? Is she or he available to you if a tax-related question or issue comes up? Make sure you feel comfortable with the tax preparer’s style, manner and process. If not, keep looking. You’ll be sharing a lot of personal information so you must be comfortable.

It’s important to have a qualified and knowledgeable tax preparer that is up to date on the tax laws and is prepared to meet your needs. That starts with feeling confident and comfortable with the answers to these three questions. If you feel good about the answers, it’s a good sign that your tax preparation needs will be met. Still need help getting started? The IRS has a website for you with tips and tools –

IRS Impersonators and Other Scams

I recently collaborated with Arlington Community Federal Credit Union (ACFCU) to present a workshop at two local retirement communities. It was called called “IRS Impersonators and Other Scams: Tips to Identify and Avoid Them.” ACFCU and I recognized that retired individuals are targeted by scammers because they often have assets that attract thieves. 

IRS impersonators are in the news all the time, but they were just one example that we discussed of scammers who use technology to reach out and steal your money and confidential information. Other scams include callers impersonating the Microsoft Help Desk and Dominion Virginia Power – services that you don’t want to have a problem with.

We couldn’t possibly describe every scam. New scams are created all the time. In our workshop, we emphasized using healthy skepticism when your phone rings or when you get an email from an unknown (or even a known) sender. Tips that we shared to identify scams included:

  • Be skeptical of any contact that you did not initiate; if you want to verify, hang up and call the legitimate business, charity or tax agency.
  • If you answer and no one is there immediately, hang up.
  • Do not click on any links in unexpected emails or emails from unknown sources.
  • Look at the return email address and subject line and delete if they do not appear to be from a legitimate sender.
  • Any offer via email or phone that sounds too good to be true is likely a scam.

Email “phishing” scams are very popular because they can send huge volumes very quickly. To me, the most insidious phishing scams come from IRS imposters because hey, who isn’t afraid of the IRS? 

Protect yourself! Remember that the IRS does not send emails about your tax refund or sensitive financial information. Most IRS communication is still through the good old-fashioned USPS. If you receive an email claiming to be from the IRS that contains a request for delinquent tax balances or financial information, immediately do the following:

  1. Don’t reply, open any attachments or click on any links. 
  2. Visit the IRS’ identity protection page.
  3. Forward the email as-is to the IRS at [email protected]
  4. Delete the original email.

Tax scams are a year-round business, so taxpayers always need to be on-guard for IRS imposters. Need to report an IRS imposter? See Report Phishing and Online Scams for more details.