Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of income, keep track of deductible expenses, keep track of your basis in property, prepare your tax returns, and support items reported on your tax returns.
You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the type of business you are in may affect the type of records you need to keep for federal tax purposes.
The length of time you should keep a document for will depend on the action, expense, or event the document records. You must keep your records as long as needed to prove the income or deductions on a tax return.
Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.
The responsibility to substantiate entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove certain elements of expenses to deduct them.
Keep all records of employment taxes for at least four years.
Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return.
The following are some of the types of records you should keep:
Documents for assets should show the following information:
The following documents may show this information:
- Source -irs.gov