Whether it's for personal income taxes or business taxes, it's always a good idea to keep certain records, mainly in case you are audited. For your personal taxes, it's probably enough to keep records of your income and past tax returns. Businesses, on the other hand, should keep more detailed records of income and expenses. Not only are the stakes much higher, but businesses may be more vulnerable to audits than individuals. The business you are in will affect the type of records you need to keep for federal tax purposes, but the following is a list of certain types of records that should be kept in most cases. For a sample record system from the Internal Revenue Service (IRS), you can look at Publication 583.
Gross receipts are the income you receive from your business, without any subtraction for costs or expenses. It's good practice to keep supporting documents that show the amounts and sources of your gross receipts. Documents that show gross receipts include the following:
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 to manufacture into finished products. The following are examples of documents to keep for purchases:
Make sure the documents you keep show the amount paid and clearly state that the amount was for purchases.
Expenses are the costs (other than purchases) that you incur to carry on your business. Any documents you keep to show expenses should clearly indicate that amount spent and that it was in fact a business expense. Examples of which types of documents can show business expenses are:
Assets are the property, such as machinery and furniture, you own and use in your business. You must keep records to verify certain information about your business assets. You need records in order to determine the annual depreciation and the gain or loss when you sell the assets. Your records regarding your assets should show the following information:
This information can generally be shown through purchase and sales invoices, real estate closing statements, and/or cancelled checks.
Getting Legal Help
If you stay on top of it, keeping records for tax purposes should be easy and shouldn't require the assistance of a tax or legal professional. If you have any questions or concerns about the types of records you should keep, or other questions about starting or running a small business, you can contact a business organizations attorney in your area.