What?
In general, you want to have some kind of legible, official-looking record to backup each business income or expense transaction. You assign each to whatever business category is most fitting. Then you add up the totals per category.
More Specifically What?
These totals by category are what eventually get entered into various blanks on your business tax forms.
More specifically, there are typically about 40 different expense categories most businesses should at least consider to see if these potential deductions apply to your own business situation. Some categories -- especially the ones where your business will have tiny totals -- might be able to be combined. But before you do so, check with your tax professional to be sure your combinations will fly with the IRS.
Here’s an alphabetical list of potential expense categories from an accountant’s tax organizer for small business clients:
- Accounting
- Advertising
- Answering service
- Bad debts from sales or service
- Bank charges
- Car and truck expenses
- Commissions
- Contract labor
- Delivery and freight
- Dues and subscriptions
- Employee benefit programs
- Insurance
- Mortgage interest (on business property)
- Other Interest
- Janitorial
- Legal and professional
- Office Expense
- Outside Services
- Parking and tolls
- Pension and profit sharing plans - contributions
- Pension and profit sharing plans - admin costs
- Postage
- Printing
- Rent - machinery, vehicles, equipment
- Rent - space
- Repairs
- Security
- Supplies
- Taxes - real estate
- Taxes - payroll
- Taxes - other
- Telephone
- Tools
- Travel
- Meals and entertainment
- Uniforms
- Utilities
- Wages
- Other expenses
- Cost of goods sold
- Inventory at beginning of year
- Purchases
- Cost of labor
- Materials and supplies
- Assets acquired -- such as computers, equipment, companies your business acquires and other assets.
You’ll probably also want to categorize income, so you’ll know much comes in from which revenue streams or which types of products or services you sell. What would be the income divisions you’d like to track?
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