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Keeping Good Records

Keeping Good Records

Keeping Good Records Saves You Money and Protects You in an Audit!

Why Should I keep Business Records?

To help monitor your business progress, prepare tax returns, and prepare financial statements. The burden of proof is on the taxpayer to prove that they had the expenses they claimed on their tax return.

1. Monitor your Business: You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.

2. Prepare Financial Statements: These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.

The Basics:

  • An income statement shows the income and expenses of the business for a given period of time.
  • A balance sheet shows the assets, liabilities, and your equity in the business on a given date.
  • A Profit and Loss Statement:

3. Prepare Tax Returns. You will be able to trace the source of all receipts and keep track of deductible expenses. This will save you a lot of headache in case you are ever audited. This is a real time saver when you are referring to prior purchases as well.

What Kinds of Records Should I Keep?

Supporting Business Documents
Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents such as invoices and receipts.

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.

Gross receipts are the income you receive from your business.

You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following:

  • Cash register tapes
  • Bank deposit slips
  • Receipt books
  • Invoices
  • Credit card charge slips
  • Forms 1099-MISC

Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for purchases. Documents for purchases include the following:

  • Canceled checks
  • Cash register tape receipts
  • Credit card sales slips
  • Invoices

Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Documents for expenses include the following:

  • Canceled checks
  • Cash register tapes
  • Account statements
  • Credit card sales slips
  • Invoices
  • Petty cash slips for small cash payments

Travel, Transportation, Entertainment, and Gift Expenses
If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses.

How Long Should I keep Records?

  • Failure to report taxable income over 25% – keep records for 6 years.
  • Fraudulent Returns- Keep records indefinitely.
  • Failure to File Return- Keep records indefinitely.
  • Claim for credit or refund after you file your return- keep records for 3 years from the date you filed your original return, or 2 years from the date you paid the tax, whichever is later.
  • Claim for a loss from worthless securities or bad debt deduction – keep records for 7 years.
  • Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

We are not a law firm. We employ attorneys, enrolled agents, and CPA’s.

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