Advice from the field: Records a key year-end item

As the end of the year approaches, small-business owners have numerous financial decisions to consider, from inventory management to retirement-plan contributions. Equally important are the record-keeping moves needed to support those decisions.

Have you taken time to verify that each of your business's expenses is categorized properly? Letting your accountant decide whether a meal expense was, well, a meal expense can cause you to pay more income taxes than required.

Only 50 percent of business meals, such as those used to court a new client, can be deducted on taxes. That dinner party for 10 at, say, $450 is worth only a $225 IRS deduction. But, wait, was it for a staff planning meeting or a Christmas party, which is fully deductible? Your accountant doesn't know which is correct if you code the expense incorrectly or don't tell her.

Should the entrepreneur take an extra draw or bonus check to whisk family members off to the dentist and eye doctor before Dec. 31? A person with assets can legally gift generous sums of money each year without tax consequences. It's a misconception that these gifts are limited to family. Not true.

Gifts are tax-free to anyone as long as each gift does not exceed the IRS maximum, which may change annually. For 2012, it is $13,000 per person, with exceptions for tuition and medical expenses. Above the limit, the gift-giver should file IRS Form 709 and pay gift tax on the overage. For more information, go to and search for Publication 950.

If your business tax year ends Dec. 31 (some will not because a business calendar year might differ from the regular calendar year), prepare to clean out files. A business that has been around for several years may now be able to shred some older files, freeing up space. Check the rules at and have a chat with your tax accountant beforehand.

One rule of thumb is to keep records for seven years, but that doesn't pertain to 100 percent of each file. You must retain purchase records longer for equipment not yet fully depreciated, etc. Separate rules pertain to how long a business must keep resumes and applications, personnel folders on terminated employees, workers' compensation accident reports, W-2's, etc.

Move accounts-payable "paid" files and accounts-receivable "paid" files to other drawers or boxes to make room for payments made and received in the new year. Do not commingle years. The filing system should match the tax year, making it ever so much easier to retrieve proof if questions arise.

Meeting deadlines and understanding implications of taxes are important parts of every life and every business.


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