Record Keeping

What records do you need to keep, and how will you keep them? The method you choose could be one you are stuck with for some time. Whether it’s client records or your own books, changing systems could be a hassle. However, the prospect of change shouldn’t immobilize you. No choice is irreversible.
Computerized records are quick, easy, and will save you time in the long run, especially if you don’t feel the need to duplicate everything you do on paper (i.e., enter the info once on the computer; don’t write it down first). Although that’s uncomfortable at first, you will get used to it, and it’s perfectly safe as long as you make copies (backups) of your material. Speaking of backups, don’t rely on just one type. Backups in “the cloud” have been lost just as have backups on home office devices. Use both, not just one.
You can get a laptop and portable printer that come with you in the car, and enter patient information and print out bills at each stop. Your year-end record keeping will be simplified and you won’t have piles of paper to file. Keeping regular backups will prevent catastrophic loss.
One easy method of keeping track of your transactions is using the computer program called Quicken; it’s very inexpensive, easy to use, and it conveniently categorizes all your entries so that at the end of the year you get a nice organized printout. For an outline of how to categorize your expenses, look at the standard items listed on tax form schedule C. You may want to make more categories than exist on that form, but use that as a start.
Update your financial records at least once a month. That way you will avoid a year-end time crunch, and will be better able to evaluate how your business is doing.
 

Office Equipment, Supplies and Expense

Keep every receipt for every item you purchase for your office (office furniture, supplies, equipment, stamps, pencils, books, and professional journal subscriptions). You may already do this for the obvious things such as drugs or your computer, but don’t forget to keep track of purchases of paper clips, pens, and so on. 

Telephone

Keep your telephone bills. You can write off the whole phone bill if the business telephone is the second one. If you only have one phone, you can only write off the calls that are businessrelated. Either assign a percentage of your phone use to business / personal, or each month, mark the business calls on the bill so you won’t forget later (who did I call in Cincinnati?).

Inventory

Keep year-end records of your inventory if you are required to use accrual accounting. (Usually, that means if you derive substantial income from sale of products that you keep on hand as inventory. Consult your financial advisor or accountant for details.)

Auto records

Keep a notebook in your car. Record costs of gas, maintenance, and repairs. Record mileage driven for any job-related activities, including miles to each job and in between jobs; miles driven to purchase supplies; to meetings; etc. Include dates, times, miles driven, destination, and purpose. (Remember to write down your odometer reading each Jan 1 and Dec 31, as well as the mileage on the day you put your car to use in your business, if that’s mid-year.). To ease your record keeping, put all auto expenses on one credit card.

Meals and entertainment

Record any meals or entertainment that you pay for in the course of your business. Eating out while between house calls is not deductible, so don’t bother keeping those receipts for tax purposes, but you may want to record them for your budget. However, if you take a client or a colleague to lunch, you can deduct part of that expense. Keep the receipt and record the date and time of the meal, as well as a short sentence describing what business you discussed. For meal expenses you incur while out of town on business, keep your receipts or use the per diem deduction (see Taxes).

Continuing education expenses

Keep receipts for hotel and seminar fees. Auto mileage is deductible as part of your auto expense; meals as above. Keep airline ticket receipts and record taxi expenses, bus fares, airport parking fees, car rental fees, etc.

Payments for services

Keep bills you pay to book keepers, answering services, attorneys, veterinary hospitals, and so on. If you pay more than $600 to one business for services in any given year then you should file a 1099 form to report that. However, you don’t have to file a 1099 for any incorporated business.
 

Saving Records

The number of years you are required to keep records varies with your situation. Keep receipts for any tax deductible expenses for at least 3 years from the date you file your tax return. If the IRS suspects a gross error, they can look back for 6 years. Eleven years is the maximum time for assessment, collection, and refund claim. To be safe, keep your records for 6 or 11 years. If your taxes are false or fraudulent (whether on purpose or by “accident,”) the IRS can look back for an indefinite period.
Records relating to your home office deduction (if you take that) should be kept for the entire time you own your home (this includes any receipts for improvements to the property, since that increases your basis). Records for any equipment that is being depreciated should be kept for the time of depreciation (which varies depending on whether the item is a vehicle, computer, etc.).