The Secrets To Running a Cash Business

If your business is primarily cash, you need to take several precautions. You need to be very scrupulous in keeping records in case you are ever audited by the IRS. Here are some hints:

• Give each customer a receipt or invoice for payment.
• Attach your receipt/invoice to your deposit slip receipt you get from the bank.
• Keep your deposit slip with your receipt/invoice attached to your bank statement.
• Keep your receipts for all cash purchases you make as well and keep them with the bank statement too so both income and expense records are together.
• NEVER pay personal expenses out of your business bank account.
• If you take cash out before you make a deposit, be sure you account with a receipt for what you spent it on. Better yet, make the deposit and then write a check for the expense.
  

Remember, if you cannot prove an expense, you may not be allowed to claim it on your tax return. There are some exceptions like taxi rides, tolls...etc. For those, just list them on a piece of paper and attach to the bank statement.

If you are audited and have your records well organized and your income and expenses substantiated, you should sail through an audit with flying colors. If not, your expenses you cannot prove may be disallowed and than can make assumptions about your income from prior year that may not be close to what you are making now. Keeping good records protects your hard earned money and your business.

If you have questions and need assistance contact a tax professional such as an Enrolled Agent or a CPA.