Today TaxMama hears from Kris from Kentucky in the TaxQuips Forum with a common rant.” My clients opened up their checking accounts (3 out of 4). They set them up without the images or cancelled checks, and their records are at best: horrible. To get the images will cost over $1,000 now, in a time when they don’t have it. The cost to have had it hooked up to the account and easier to get in a situation like this? Perhaps $15 a month.”
Dear Kris,
You have my deepest empathy in your time of frustration. I hear your scream. And that of Rita Lewis, an EA in Connecticut.
You’re right. I cannot tell you how often this comes up. It used to be, back in the bad old days, that if you were getting audited, the banks would produce the cancelled checks for free. Not any more.
And really, it does only cost an extra two or three dollars per month to get the images on your account. What business wouldn’t do that? That IS pretty darn dumb.
Also careless is the practice of not reconciling the bank accounts on a regular basis. How do you know what charges and errors your bank is putting through your accounts if you don’t reconcile your statements?
Even with the images included, most people these days have online statements. If you don’t download those statements with the precious images, you lose them. Be sure to download them at least every three months, even if you don’t do it every single month.
Many small businesses don’t keep books at all because they are busy and can’t afford a bookkeeper. At least have the sense to pay the few extra bucks for check copies, so in an audit it will be easier for someone to prepare a set of books and to provide IRS with the substantiation to back them up!
As Kris says, which is better? Having to cough up $16,000 to IRS because you don’t have the records? Or paying 15 bucks a month/$180 per year?
And remember, you can find answers to all kinds of questions about IRS audits, banking information and other tax issues, free. Where? Where else? At www.TaxMama.com.
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TaxMama is of course right on the money… I have several clients that I strongly recommended bookkeeping services to (before my tax practice flourished I would take the books on myself).
Small businesses are funny when it comes to bookkeepers. Many simply need a write-up that takes a few hours per month. Then they find out what a compentent bookkeeper would charge and balk at the price. But when you look at their bank statements and they bounce a minimum of 10 checks per month because the “forgot” to balance their books or they just call up the bank for their balance and have no idea what checks are outstanding I explain that if they had spent the $200-$300 on having someone reconcile their accounts they may not spend upwards of $400 each month in NSF fees.
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