Bookkeeping Tips for Service-Based Businesses

 

 

Running a service-based business—whether you’re a consultant, cleaner, child care provider, or independent contractor—means you’re not just delivering your expertise, but also managing the financial side of your business. Bookkeeping can feel overwhelming, but with a simple, consistent system, you can keep your records in order, stay compliant, and make tax time a breeze. At AccuTax Inc., we help service professionals like you set up bookkeeping systems that work—so you can focus on what you do best.

Why Bookkeeping Matters for Service Businesses

Good bookkeeping isn’t just about taxes. It helps you:

• Track your income and expenses
• Understand your business’s profitability
• Prepare for tax filing and audits
• Support claims for credits like the Earned Income Tax Credit (EITC)
• Make informed business decisions

Failing to keep proper records can result in denied tax credits, missed deductions, and unnecessary stress if you’re ever audited.

What Records Should You Keep?

According to both federal and state guidelines, every business owner must keep records that clearly show income and expenses. For service-based businesses, this means:

• Daily logs of all business transactions (sales, payments, purchases, expenses)
• Receipts and invoices for all payments received and expenses paid
• Bank statements, deposit slips, and canceled checks
• Supporting documents such as contracts, advertisements, and correspondence

For example, the Connecticut Department of Revenue Services (DRS) specifically requires self-employed individuals to maintain detailed records to support income and expenses, especially when claiming credits like the CT EITC. If your records are incomplete or inconsistent, your credit may be denied.

A Simple Bookkeeping System That Works

Here’s a straightforward system you can implement today:

1. Maintain a Daily Log

Keep a notebook, spreadsheet, or use bookkeeping software to record every business transaction as it happens. For each entry, include:

• Date
• Name of client or vendor
• Amount received or paid
• Method of payment (cash, check, credit card)
• Description of the service or expense

Sample Income Log:

Sample Expense Log:

2. Keep All Receipts and Supporting Documents

Attach receipts, invoices, or copies of checks to your log entries. For digital records, scan or photograph paper receipts and store them in organized folders.

3. Use a Dedicated Business Bank Account

Deposit all business income and pay all expenses from a separate business account. This makes it easier to track transactions and provides a clear audit trail.

4. Retain Records for At Least Three Years

Tax authorities may request records for up to three years after you file your return. Keep your logs, receipts, and bank statements organized and accessible.

5. Respond Promptly to Tax Notices

If you receive a notice requesting additional information, respond quickly and provide the requested documentation. Failure to do so can result in denied credits or adjustments to your tax return.

Common Mistakes to Avoid

• Not recording cash income: All income, including cash, must be logged and supported by documentation.
• Mixing personal and business expenses: Use separate accounts and only record business-related transactions.
• Relying on memory: Always document transactions as they occur; don’t wait until the end of the month.
• Ignoring tax notices: Always respond to requests for information from tax authorities.

 

How AccuTax Inc. Can Help

 

At AccuTax Inc., we specialize in helping service-based businesses set up and maintain simple, effective bookkeeping systems. Whether you need help getting started, want to streamline your current process, or need support during tax season, our team is here for you.

Contact us today to learn how we can help you take control of your business finances and stay compliant with all tax requirements.

References:

• Connecticut DRS, “Guidance on State EITC Recordkeeping Requirements for Self-Employed Persons”
• Internal Revenue Code, Section 6001 (Recordkeeping requirements)