Ah, taxes… few people (if anyone other than my wife, who going to be a PhD in accounting…) like to do their taxes.  It means you have to hunt around for old receipts, try and remember what some expenses were, and even pay in more money than was already withheld.  No doubt that it is a pain.  So why do a post about taxes during the summer months when tax day seems so far away?  Simple: Any efforts you make now to get organized can save you time (and probably money) down the road.

So, how can you minimize the pain?

A bit of filing and organization can go a LONG way to prevent some pain down the road.  (Think about it like flossing… will save some drilling in a future visit to the dentist).  And although it may seem fairly obvious, proper recordkeeping is one of the most important considerations for any startup company, especially in the early stages when you are do not have an established set of policies, an experienced accounting staff, or chief financial officer. Recordkeeping for tax purposes should be integrated into an entire document retention policy for the company. Most of the items discussed below will be key documents for accounting purposes — thanks to the help of my wife Allison for her tips.

Receipts of Income. Retain all documentation that provides evidence of income.

Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents that show gross receipts should include the following:

• Receipts of Sales
• Customer Invoices
• Shipping Records
• Bank Deposit Records
• Credit Card payment records (particularly in the event you are primarily selling goods or services via the Internet)

Payroll and Employee Information. Early on, startup companies should create and utilize standard documents for all new employees that join the company. These records should be kept for a number of purposes, including for tax purposes. In addition, as you begin to provide compensation to your employees and make withholdings from the employee’s compensation, you should be carefully tracking and recording these amounts. Documents that show payroll and employee information should include the following:

• Records evidencing hiring
• Records evidencing changes in title, job status or salary
• Termination documentation
• Cancelled Checks
• Paystubs or payroll run reports
• Withholding calculations

Records of Purchases. The purchases described in this section reference items purchased and resold to customers, or goods purchased for manufacturing into finished products to be sold to customers. Since these purchases will likely represent an important portion of your costs of goods and your inventory, the company should keep records that identify the costs of purchase and payment information. Documents that show purchases should include the following:

• Cancelled Checks
• Credit Card Records
• Invoices
• Shipping and Receiving Documentation and Reports

Business Expenses. These business expenses are those expenses that are used for aspects of the business other than those directly related to items to be sold to customers. These include research and development costs, meals and entertainment, electricity bills, and similar costs. These expenses may be in the form of expenses that are submitted by your sales people for reimbursement or could involve more traditional purchases of office supplies. Documents that show purchases should include the following:

• Cancelled Checks
• Credit Card Records
• Receipts
• Invoices

Records of Company Assets. Assets for your company may range from machinery, vehicles or technical research equipment to buildings, software, or furniture. The key with company assets is to retain documentation on the purchase, ongoing improvements and maintenance, and disposal of the assets. Documents that show purchases should include the following:

• Acquisition Records (Invoices, Shipping/Receiving Information; Payment Information)
• Maintenance Records & Costs
• Depreciation Reporting
• Disposal Records
• Real Estate Records
• Leases and Rental Records