Why?
Because no documentation = no deductions!
If you don’t keep records, you won’t have the data to document business expenses and other business deductions -- those deductions that you subtract from your gross income to arrive at a lower taxable income so you can legitimately pay less tax.
Not having the records to support legitimate business-related deductions means you’ll either pay way too much in taxes all the time -- or, if you’re ever audited -- your attempted deductions may be disqualified and you’ll face back taxes AND penalties.
It’s tough enough to pay each year’s taxes, plus next year’s estimated tax as you go along. But having to also add payments for prior years’ taxes plus penalties for underpayments makes life and business seriously difficult.
You want to avoid ever getting yourself in that situation. It kills your sense of humor and strains your family relationships and friendships, in addition to your bank accounts.
So -- although it IS a hassle -- keeping records is definitely something every business owner needs to do.
The good news is that once you get set up with a system to collect the data and get in the habit of doing it (and, better yet, getting some help with it), it just becomes a habit and you almost forget it’s a hassle. Once you get used to it, it doesn’t phase you anymore and you’re ready -- even eager -- to familiarize yourself with more levels of financial tracking detail.
You start to see that by doing this, you may qualify for more opportunities to legally reduce your business and personal tax total -- that becomes a powerful incentive.
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