Hobby or Business? It matters to the IRS

Posted by Bruce Mc on Oct 11, 2011 in Bookeeping, Information, Tax Planning | 0 comments

Hobbies such as sewing, woodworking, fishing, gardening, stamp and coin collecting (I build radio controlled model boats/ships) can make you money. Recently a client contacted me about taking her Photography to a new level. So lets look at this subject again.

When that hobby starts to turn a profit, it might just be considered a business by the IRS.

The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity that is carried out with the reasonable expectation of earning a profit.

The tax considerations are different for each activity so it’s important for taxpayers to determine whether an activity is engaged in for profit as a business or is just a hobby for personal enjoyment.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to deductions such as expenses and losses, the two activities differ in their tax implications.

If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

Does the time and effort put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

Hobby or Business

Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider it a business because you might be able to lower your taxes and take certain deductions.

Give me a call if you’re not sure whether your hobby is actually a business and we’ll help you figure it out.

The Home office

Posted by Bruce Mc on Mar 22, 2011 in Home office, Information | 0 comments

Guest post by Mariette Knoblauch of Ballard Beancounters

In the economic chaos of the past few years, many people have turned to self-employment. If you have a home-based business, you may very well have a home office, and a convenient deduction on your federal income taxes.

What makes a home office deductible?

There are several combinations of criteria that qualify.

Regular and exclusive use for business.

The area must used only for your business. It can’t be your kitchen table, no matter how much work you do there. It doesn’t have to be an entire room with walls and a door, just a separate identifiable area that isn’t used for anything else.

Principal place of business.

This is either the place you spend the greatest amount of time doing your work,

If you do the kind of work that’s performed at client job sites (like this intrepid anæsthesiologist), it’s where you do administrative tasks for your business such as invoicing, paying bills, (and filling out Form 8829 for your home office deduction), and you have no other place available to do these activities.

If you meet clients or customers in your home, an office that you use exclusively and regularly for that purpose can be deducted, even if it’s not your principal place of business and you have another office somewhere else.

If there is a separate structure on your home property, such as a free-standing studio or garage, that you use exclusively and regularly for your business, it can be a home office even if it’s not your principal place of business. (Why not put up a yurt in your backyard?)

Or, if you are a wholesale or retail seller who stores inventory, it doesn’t even have to be exclusive use. As long as you don’t have any other place to keep your items, wherever you keep your not-yet-sold products can be a home office.

To figure the deduction, measure the square footage of your office space, and divide it by the total square footage of your residence to get the percentage of your home expenses that will be deductible. Homeowners can take a percentage of mortgage interest and real estate taxes (the rest goes on Schedule A as usual), and renters can deduct a portion of their rent. Other partially deductible expenses include utilities and insurance. Homeowners can also take depreciation expenses – talk to your tax person about this.

Another often overlooked bonus of having an office in your home is that just about every place you go for work is business mileage. There’s no commuting exception for the first and last trip of the day. Going to see clients, vendors, business prospects, delivery, even a trip to Staples to buy more toner – it’s all business mileage the minute you leave your driveway.

Bruce here:

I want to Thank Mariette, who sent this in to help keep the blog going while I am doing tax work. Thank you very much for the post.

Form 1099 Rules & Regulations

Posted by Bruce Mc on Dec 24, 2010 in Employee, Information, Payroll service | 0 comments

Here are some guidelines to help determine if a vendor needs to be set up as a 1099 vendor.

Who must file Form 1099?

Persons engaged in a trade or business must file Form 1099 MISC when certain payments are made. A person is engaged in business if he or she operates for profit; thus, personal payments aren’t reportable.

Payments to Report

A Form 1099 MISC must be filed for each person to whom payment is made of:

$600 or more for services performed for a trade or business by people not treated as employees;
Backup Withholding (all amounts);
Rent or prizes and awards that are not for service ($600 or more) and royalties ($10 or more);
All payments to crew members by owners or operators of fishing boats;
Payments of $600 or more to a supplier of health and medical services; and
Crop insurance proceeds.

Payments made to corporations, except those made for medical or health care services and attorney fees, are not required to be reported on Form 1099 MISC.

Non-Employee payments – Non-employee payments are reported in Box 7 of Form 1099 MISC. Non-employee payments include fees, commissions, prizes and awards, and other forms of compensation provided for services performed for a trade or business by an individual who is not an employee. If the following four conditions are met, a payment generally is reportable as non-employee compensation:

The taxpayer made the payment to someone who is not an employee;
The payment was made for services in the course of a trade or business;
The payment was made to someone other than a corporation; and
Payments of at least $600 were made to the payee during the year.

Real Estate Agents

Real estate agents must report on Form 1099 MISC rents collected for property owners before deduction of commissions, fees, or other expenses if the amount paid to any one property owner totals $600 or more during the calendar year.

Payments for Services

When a business pays an independent contractor for services performed in the course of that business, the service recipient must file Form 1099 MISC if the payment is $600 or more for the year, unless the service provider is a Corporation.

Direct Sales

The law requires information reporting on Form 1099 MISC for certain direct sellers. This requirement applies to persons who, in the course of a business, sell consumer products on a buy/sell basis, deposit/commission basis, or any similar basis to any buyer who (1) sells such product in a home or other than in a store or (2) sells these products to another seller. Sales of $5000 or more are reportable.

Deceased Employee Wages

If an employee dies during the year, the employer must report the accrued wages, annual leave pay, and other compensation paid to an estate or beneficiary after death on Form 1099 MISC; this applies whether the payment is made in the year of death or after the year of death.

Listed below are a few examples of payments that should be reported on Form 1099-MISC

Medical Services

Medical & Dental Services
Hospitalization
Medical Assistance Benefits
All payments to Medical Service Corporations

Non-Employee Compensation

Occasional Salaries & Wages (to Non-Employees)
Professional Service Payments
Advertising
Appraisal
Architectural
Attorney
Auditing
Board Members
Chaplains
Computer Programming
Consulting
Design & Testing
Engineering
Evaluation Consultant
Graphic Artist
Institution Contracts
Teacher/Instructor

Maintenance & Repairs

Commercial Repairs – Hwy Vehicles
Contracted Repairs
Computer Repairs
Extermination Services
Janitorial Services
Maintenance Agreements
Protection & Security Services

Law Enforcement & Court Services

Court Reporters
Court Appointed Workers
Expert Witnesses
Prison Labor Allowance
Non-Employee Allowance

Other Services

Armored Car
Cleaning
Construction
Keypunch
Laundry
Parcel & Delivery
Printing
Refuse Collection
Security

Rents (except rent paid to real estate brokers)

Real Property
Other Property

Note: This is only a partial listing of accepted 1099 MISC Vendors. If a vendor is entered as a 1099 vendor and it doesn’t look correct, the Vendor Maintenance team will research the problem. It may mean a phone call to the person who entered the vendor or a phone call to the vendor directly.

For more information Please visit my company website. L & R Tax Preparation.

Are You Enjoying a Hobby – or Running a Business?

Posted by Bruce Mc on Oct 26, 2010 in Information | 0 comments

Why It Matters

Millions of Americans use hobbies to relax and take their mind off work. But hobbies that turn a profit – such as sewing, woodworking, fishing, gardening, stamp and coin collecting – may actually be considered businesses by the IRS.

So, when does a hobby become a business and how does that change the tax implications?

Definition of a Hobby vs a Business

The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity carried on with the reasonable expectation of earning a profit.

The tax considerations are different for each activity – so taxpayers should determine whether an activity is engaged in for profit as a business, or is engaged in as a hobby.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to expenses and losses, the two activities differ in their tax implications.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Is Your Hobby Actually a Business?

If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

Does the time and effort put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business. The profit test is the primary test. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

What Are Allowable Hobby Deductions?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider whether it’s a business or not. You may be able to save on taxes.

If you’re not sure whether your hobby is actually a business, contact me and we’ll help you figure it out.

Choosing the Right Representative: A Re-post

Posted by Bruce Mc on Aug 5, 2010 in Re post, Things forgotten | 0 comments

Rob Teuber is an attorney with the law firm Weiss Berzowski Brady LLP and author of the tax law blog www.federaltaxlawforum.com.

I deside to repost this as it would seem the information has been forgotten.

Choosing the Right Representative to Help You with Your Federal Tax Problems.

When you or your business is faced with tax problems it is a good idea to consider hiring a professional to help you navigate through the complex tax laws and procedures. The problem is often finding the representative that is right for you. Questions you may have include: Should I hire an accountant or lawyer? Do I need a local representative or does it matter where the person is based? What is the lawyer’s/accountant’s reputation?

As a lawyer myself, I will answer these questions in typical lawyer fashion: “It depends.”

First and foremost, you should choose a representative that is right for you. The personal relationship that you form with a representative is one of the most valuable criteria for hiring someone. It is important that both the representative and client trust one another, be on the same page as to the desired resolution of the problems and agree on the way to approach the IRS.

Accountant or Lawyer.

Generally, both accountants and lawyers are permitted to practice before the IRS. This means that either may help you in handling a tax audit, appeals of audit findings and tax collection matters. However, subject to certain exceptions, only lawyers can represent a client in court. Therefore, when making a decision on whom to hire, consider how far you are willing (or can afford) to push a case to get the resolution you are looking for. In moving through the process, having a lawyer involved will increase the risk to the IRS that litigation will actually occur. This may encourage a more favorable settlement. Further, if you think you will need the protection of the “Attorney – Client Privilege” while pursuing your case, you may want a lawyer instead of an accountant.

Do You Need a Local Representative.

In days gone by (before the IRS Restructuring and Reform Act of 1998 ) most tax related issues were handled by local IRS offices. The Restructuring Act, however, changed a lot of this by centralizing certain functions in different regions of the country. As such, local representation is less relevant than it used to be. Due to these landscape changes much of the work can easily be managed through conference calls and correspondence.

Knowledge and Reputation.

Of course, when choosing a representative to help you with your tax problems, you want to be sure that he or she has both the knowledge and reputation that can help you. Investigate the person to find out more about who you will be dealing with. If you are reading this post, you are likely already using the internet as a tool to find out more.

Most representatives will have a website. While informative, don’t rest completely on the representations made on that website. The website will list the accomplishments of the attorney/accountant and provide information on their skill set. Start here to find out if the person can do for you what you need. But don’t stop here.

Find out if the prospective representative has a blog. If so, spend some time reading through the blog to see if you are impressed with their knowledge of the tax laws and procedures. If so, this may be the right representative for you.

Use search engines to find out what you can about the representative’s reputation. While you won’t find a website called “here is a list of representatives and what the IRS thinks of them,” you will be able to find out whether the representative has written scholarly articles in industry magazines or business journals. This may be the best way to find out about one’s reputation. If a reputable journal will publish their work, there is a greater likelihood that the author has a good reputation.

Be mindful however, that specific and direct recommendations for a particular representative will likely be hard to come by. Most people don’t want to broadcast to the world that they or their business has had tax troubles.

The Ultimate Goal.

Ultimately, the goal is to find someone that is right for you. When doing so, consider the points made above. At the end of the day, you want to be comfortable with your choice and have confidence that you have hired the right person for the job.

Rob Teuber is an attorney with the law firm Weiss Berzowski Brady LLP and author of the tax law blog www.federaltaxlawforum.com.

Tax for Truckers

Posted by Bruce Mc on Jul 29, 2010 in Accounting, Bookeeping, Information, personal finance, Tax Preparation | 2 comments

Truck-driving is a vital industry to our economy. I have been a part of that industry for 24 years and know I will always be a part of it. I even maintain a Class A CDL. As such I am very familiar with the ins and outs of the trucking industry and its related tax issues.

Congress has designed numerous tax benefits designed specifically for truck drivers. However, I have always conceded that there is not nearly enough information available to truck drivers concerning taxes. So here, I plan to shed some light on the issue. To help truckers across the country, I have compiled the following information for Drivers, to give them/you a better idea of what could be important towards your taxes.

Trucking Tax Deductions

Keep Immaculate Records

Remember, records are the key to getting all the deductions you are entitled to and in the event of an audit are required to back up the deductions you claimed. Get receipts for everything when you are on the road and if no receipt is available make your own receipt for the expense. Keep your receipts together and record them somewhere, in a journal, a notebook or a computer so you can total them up at the end of the year. While an audit is never a “good” thing, as long as you have your financial information organized then you should not have anything to worry about. Throughout the year, keep your receipts and financial records together and safe in a box. When its time to get your taxes done, take the whole box in so that you have all the information you need for your preparer. I have my clients who are drivers bring them in or by as they are in town and I keep them safe for them.

People always seem to lose something; they should do accounting work themselves every month or deal with a bookkeeper to get this stuff done all year long. The income statement should be reviewed throughout the year. We can’t consult people when we see them once a year.

Track the little things

As an independent owner/operator you have the ability to claim a portion of your rent or mortgage as office space. You can also claim office expenses ranging from pencils to logbooks things you may pay cash for and forget about. Tools such as tire chains should also be claimed. Keep receipts for everything that’s work-related and to stay organized throughout the year, even if that means visiting your accountant on a regular basis.

Meal Allowances

The Standard Meal Allowance (per diem) is different for truckers than it is for other people. Taking the standard deduction relieves you of the responsibility of keeping records and receipts for all your meals, and most will find that the $36.00/day allowance will cover your actual expenses. There are special rules that apply to the meal deduction that you should also be aware of. If you get home, or pass by the house during the day you will have to pro-rate your deduction for that day.

For example,

you’re out on the road and decide to pass by the house to collect your mail and check out the homestead. You arrive home at 6:00 am and stay for 3 hours.

Divide the day up into 4, 6 hour periods (Note: IRS rules state you can use any period that you consistently apply and that is in accordance with reasonable business practice.), so you would have the following 4 periods in a day –

Midnight to 6 am
6 am to Noon
Noon to 6 pm
6 pm to Midnight

Since you arrived home at 6 am and stayed till 9 am you would be eligible for the standard deduction for the other 3 periods which is $27.00 ($36.00 times 75% -3/4-.75) for that day. If you arrived home at 10 am and stayed till 1 pm then you would be eligible for 2 periods or 50% of the daily deduction. This same system would also apply to days when you arrived home for a few days off or left home to go back out onto the road. In the event of an audit your log book would be used to validate your time at home and on the road, so hang on to those old log books. Keep a logbook with dates and amounts that you eat while on the road or it will be very difficult to come up with an accurate number.

Travel Expenses

According to the IRS, travel expenses are ordinary and necessary expenses that you pay while traveling away from home for your business or profession. An ordinary expense is one that is common and accepted in your field of business, trade or profession. A necessary expense is one that is helpful and appropriate to your business. An expense does not have to be indispensable to be considered necessary. However, you cannot deduct expenses to the extent they are lavish or extravagant.

Anything you spend on, in or around the truck would normally be considered a deduction.

For example:

Antennas, batteries (for the flashlight as well as the truck), binders, blankets, boots, briefcase, calculator, CB repairs, CB’s, cellular phone, chains, checking account fees (atm fees for the extra charge because you’re away from your home bank), chrome things, cleaning supplies, com check charges, coveralls, Federal Express (UPS, Postage for business mail or other mail which is necessary because of your absence from home), flashlights, gloves, hand tools, ice box, insurance, laundry, legal fees (not fines, but the cost for legal fees to defend yourself and court costs), lights, log books, luggage, lumpers, maps, motels, office supplies, pens, permits, pillows, radio, repairs, ropes & equipment, safety equipment, safety glasses, scales, scanner, sheets, showers, signs, smelly stuff, special clothes, special equipment, stapler, staples, stereo, storage, sun glasses, tarps, taxi, tires, tolls, tool boxes, truck organizations, truck parking, truck wash, truckers newspapers & magazines, TV, and uniforms.

This list is by no means all conclusive, but it should give you the idea. If you’re not sure about a particular item, check with the IRS or your accountant on it, especially if it’s a large expense. If you take an expense and it’s later ruled invalid you can be charged penalties for any additional tax now due from the time the tax would have originally been due. There are also a few other items worthy of more specific mention.

Lumpers

If you use lumpers and are not reimbursed by the company for the amount you pay the lumper, or are only reimbursed for part of the cost of the lumper you can deduct the amount you paid or the difference if you were partially reimbursed. Get a receipt from the lumper that includes his name, address, social security number, and the company at which you used his services, the date and the total amount you paid him. Make sure you get the information before he loads or unloads your trailer. If he won’t, chances are you don’t want him in your trailer at all.

Truck Weight

If you drive a truck with a large gross weight (over 55,000 pounds) you will need to pay the federal highway use tax by August 31st every year. If you have not already purchased a truck with this weight, be aware that if you do, this tax will be due for the first time at the end of the month in which you make your truck purchase. After you have paid it for the first time, you can decide to pay it every year in August, or in quarterly payments to reduce the burden.

Fuel Taxes

Luckily for truckers, most states appreciate your purchase of their fuel and will give you specific tax breaks. Therefore it is imperative that you keep good track of your mileage and your fuel purchases.

Hire a specialized accountant

That brother-in-law whose been filing your income tax for the last 10 years may be cheaper than an accounting firm that specializes in trucking, but does he really understand the ins and outs of the business? Chances are he doesn’t and chances are it’s costing you money.

Dealing with a specialized accountant that deals specifically with the trucking industry (spicifically drivers), allows you to maximize your claim and minimize the taxes you’re forking out each year. I think specialization means you should be getting a more knowledgeable tax return and more insight into expenses and how to handle them properly. A general accountant probably won’t get it all right, especially when it comes to things like meals. It’s important to sit down with an accountant who knows the trucking industry and discuss the intricacies of your business. An accountant who specializes in trucking will then be able to determine how you can maximize your claim.

If you have questions please let me know, With over 20 years in the trucking industry myself I will be clad to answer your questions. Contact me at L & R Tax Preparation.

Reads from Last Week

Posted by Bruce Mc on Jul 25, 2010 in Information, Opinions, Week in review | 0 comments

Five Critical Facts About Business Growth is a video blog post from Chad over at Bordeaux and Bordeaux in Charlotte North Carolina. I haven’t posted much from his blog but that’s because I am to lazy to watch so I can’t really say if they are worth watching or not. However I did watch this one and every business owner needs to watch this one. He discusses the following five facts about business growth:

There is no such thing as a mature business or market.
Not all growth is good growth. Some growth can be disastrous for your Company.
Growth is a mentality – created by the leaders within a Company
Balance growth is the key to long-term prosperity.
Growing your business is much less risky than NOT growing your business.

If the rest of his video posts are like this I have been missing some things. Keep up the great work my friend.

Unfortunately, most young adults find themselves on their own when entering the “real world” without guidance about money and how to manage it. 7 Things About Money I Wish I Knew in My 20s is a great post.

IRS Presents: Five Facts about the Making Work Pay Tax Credit

Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know. IRS Presents: Six Tax Tips for New Business Owners.

Have you ever wondered how banks can offer higher than average interest rates on savings or checking accounts? Banks are in the business of making money, even if that means taking a loss sometimes. While that might sound counter-intuitive, it often works out well in the long run. So, How Do Banks Make Money by Offering High Interest Rates?

During the NATP annual conference my friend RDF ran some really great reruns. If you missed them please visit The Wondering Tax Pro

Your 2011 tax burden

Are you ready for a Roth?

Don’t fall for health care tax rumors

How To Prepare for Tax Increases Next Year In this Sluggish Economy

Am I Saving Enough Money For Retirement and How Much You Should Be Putting Away in 401K or IRA Accounts

LLC vs S Corp

Tax Relief FAQ: You Received a CP-504 Notice From the IRS for Back Taxes You Owe – What Does This Mean?

Back Taxes Aren’t Your Only Problem When Concealing Income from the IRS

This Month’s Runner Up for the Strangest Tax Form

Is extreme remodeling a charitable contribution?

Recording Fixed Assets

“Tax Cuts Will Expire” – Geithner

Me, me, me. It’s all about me.

What the Heck is Basis, Anyway?

Don’t Get Too Anxious to Stuff Just Anything into Your IRA

How Would the Expiration of the 2001 and 2003 Tax Cuts Affect Individual Taxpayers? With just a week left before Congress leaves town for the August recess, the fate of the 2001 and 2003 tax cuts is up in the air.

Last week I wrote About The Three Most Common Payroll Tax Mistakes and I shared one of my reasons and thought process as to why I have started writing about non-tax stuff. Truth is as the non-tax stuff goes, the bookkeeping is very important for your taxes. The IRS even tells you in Publication 583 (1/2007), Starting a Business and Keeping Records “Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your business that clearly shows your income and expenses.” As I read the second sentence or even interrupt it, the IRS is saying to you (business owners), it doesn’t matter if you use QuickBooks, Peachtree, or even Microsoft Office Accounting (before it was discontinued), but you need something “that clearly shows your income and expenses.” I promote QuickBooks because it is in my opinion, with over 12 years as a self-employed tax accountant, that QuickBooks is the best suited for those who keep their own books.

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