Bookkeeping & Taxes
Bookkeeping is the process of keeping track of business income and expenses and tallying them over time. Taxes are sums that you must pay to government institutions relative to the income and expenses that you tally by means of your bookkeeping processes. Business bookkeepers and accountants are often responsible for taxes as well as keeping books because these processes make use of the same information.
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Revenue
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Business revenue is the sum of a company's gross receipts. Businesses collect sales tax on gross revenue, with the exception of transactions that involve untaxed products and services, such as staple food items in many states. Although businesses collect sales tax from customers rather than paying it themselves, they must still use bookkeeping processes to keep track of how much of their available revenue represents actual income, and how much needs to be saved for sales tax payments.
Expenditures
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Businesses must track expenditures to understand the financial mechanics of their operations, such as whether they are spending too much in a particular category. In addition, businesses use bookkeeping when calculating taxes due on net income or earnings after subtracting expenditures from gross income.
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Payroll
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Business bookkeeping processes include calculating the sums due on employee paychecks by multiplying the number of hours that employees work by their hourly wage. In addition, bookkeepers are responsible for calculating withholding taxes, which the business must subtract from payroll totals and send in periodically to federal and state officials. Some payroll taxes, such as unemployment and industrial insurance, are primarily the responsibility of the employer.
Keeping Current
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If you stay up-to-date on your bookkeeping, it can be relatively simple to file tax returns. Most tax returns involve transferring bookkeeping totals and multiplying them by tax rates. If your bookkeeping is current and you only need to perform simple calculations to file taxes, you are less likely to accrue penalties and interest on late filings and payments.
Strategizing
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An up-to-date bookkeeping system enables you to develop strategies to minimize the amount of tax you owe. Income tax rates increase as your income level rises. If you know that you will earn less during an upcoming calendar year, you may choose to make capital expenditures that will lower your tax burden during a year when your overall tax rate will be higher.
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References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
