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Monday, September 25, 2023

When it comes to bookkeeping, simple works better. Don’t get bogged down with complex accounting packages when there are simple solutions available for you. Please consider using the materials that come with this guide, a simplified bookkeeping system to accomplish your necessary bookkeeping tasks.

At a minimum, when starting any business it is important to prepare a business plan, budgets, and breakeven projections. These basic tools will help you set your course down the road to profitability. Included at the end of this guide are sample forms to help you prepare your own business plan, budgets, and breakeven projections. Consult your upline and qualified professional advisors for assistance with completing these items.

Don’t wait; use your bookkeeping tools regularly. The nature of your business requires daily tracking of things like mileage, travel, and other expenses. If you wait until the end of the year, you’ll be challenged to recall a whole year’s worth of details at once. You should also consult your tax organizer materials, including your budget and breakeven projections, at least monthly to monitor your business activity and make adjustments where necessary. In addition to updating the current month’s information, look back also at prior months. This will help you stay connected to your business and your progress. Regular bookkeeping habits are a critical factor considered by the I.R.S. when distinguishing an actual trade or business from a mere hobby.

Accurately record all income and expenses relating to your business. Be sure to keep expenses by appropriate category, and refrain from overusing general categories such as “miscellaneous,” “office,” or “supplies.” When the time comes to report these items on your income tax return, it paints a clearer picture to separate out related expenses rather than combine everything together into a single category. It’s better if your examiner can quickly see on what you’re actually spending money. The I.R.S. reviews returns for reasonableness before deciding whether to audit them, and large amounts of unexplained “miscellaneous” expenses will tend to raise an audit flag as to their reasonableness.

Some common categories to break out your typical office expenses might include: “postage and shipping;” “dues and subscriptions;” “equipment;” “supplies;” and “utilities.” Other broader expense categories would include: “advertising and promotion;” “automobile;” “wholesale Amway product purchases;”  “travel and meals” (for attending seminars,  and other functions).

Keep “original source documents” to substantiate your income and expenses. For income items, you should keep invoices and monthly statements, order forms, bank deposit slips, receipts and ledgers related to the sale of Amway products to retail customers, and Forms 1099. For expense items you should keep cancelled checks, cash receipts, credit card records, Amway product purchase invoices and any other proof of payment. A simple system is to file them as you would report them, such as by income or expense category. Then, if you are called upon to justify an amount reported on your tax return, you’ll know exactly where to find your supporting documents.

Use separate accounts for business and personal needs. This is critical for building and maintaining your business in a “businesslike” manner. Separate accounts give your business its own identity. Having a separate bank account for your business will actually simplify your bookkeeping responsibilities, and it will also demonstrate to the I.R.S. that you take your business activity seriously. If you use a credit card for your business, then you might also open a separate credit card account that you use only for business items. Interest expense paid on business charges is deductible, while interest on personal charges is not. Using one card for both personal and business charges can lead to lengthy calculations trying to separate that portion of the interest attributable to business expenditures. After you establish separate accounts, it is important to keep them separate and not comingle funds between them.

Identify all deposits to your business account. You might include a brief description on each deposit slip indicating the nature of the funds being deposited, whether derived from the retail sale of Amway products to customers or from Amway bonus payments. You might also file each deposit slip along with photocopies of the deposited checks. As an alternative to using paper deposit slips and photocopies of other income sources, you may consider electronically storing this information. If you get audited years later, it’s tough to remember where every deposit came from. Without documentation, the I.R.S. may likely view any deposit as business income.

Identify transfers of funds between bank accounts. If you transfer funds from your personal account to your business account, or vice versa, then your deposit slip or electronic transfer receipt should note the account number from which the funds originated. This allows you to identify later the source of the transfer if necessary.

Keep separate bank accounts for multiple businesses. If you operate more than one business, it’s helpful to manage the financial activity of each business by assigning separate bank accounts. Generally, it’s also best to report each business activity on a separate Schedule C with your individual income tax return.