Keeping Records for the IRS STAFF PICK

Freya A Shoffner

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Business Attorney

Contributor Level 11

Posted over 4 years ago. 7 helpful votes

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1

Choose A Reliable Record Keeping System

Any recordkeeping system that is suited to your business or your family that clearly shows your income and expenses will work. Of course, if you are in business, the type of business you are in will affect they type of records that you keep. Make sure that your system includes a summary of your business transactions. Or if you are keeping personal records, be sure to keep a summary of what comes in and what goes out, where it comes from, where it goes, and when. Usually, your business books, such as accounting journals and ledgers, will contain the summary, while a family generally only keeps a checkbook register. Make sure that you also show your gross income along with your deductions and credits. For most small businesses, and families the checkbook is the main source for entries in their books. Keep in mind that there are several excellent and inexpensive software packages that will help you keep your records in order.

2

Keep Track of Your Income

Gross receipts are the income you receive from your business or from your employment. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for a business' gross receipts include the following: * Cash register tapes * Bank deposit slips * Receipt books * Invoices * Credit card charge slips * Forms 1099-MISC Families should keep similar records including: * W-2 Forms * 1099 Forms and K-1Forms * Bank Deposit Slips

3

Keep Track of Your Expenses

Expenses are the costs you incur (other than purchases) to carry on your business or your family life. A business' supporting documents should show the amount paid and that the amount was for a business expense. Documents for business expenses include the following: * Canceled checks * Cash register tapes * Account statements * Credit card sales slips * Invoices * Petty cash slips for small cash payments Individuals and families should document their expenses, whether or not you think they are deductible. Keep the following: * Canceled checks * Cash register tapes * Account statements * Credit card sales slips * Invoices (for example, the bill from your landscaper.)

4

Businesses -- Document Your Purchases

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

5

Record Your 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. For additional information on how to prove certain business expenses, refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.

6

Businesses -- Document Your Assets

Assets are the property, such as machinery and furniture, that you own and use in your business. The IRS requires that you keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets. Documents for assets include the following: * When and how you acquired the assets. * Purchase price * Cost of any improvements. * Section 179 deduction taken. * Deductions taken for depreciation. * Deductions taken for casualty losses, such as losses resulting from fires or storms. * How you used the asset. * When and how you disposed of the asset. * Selling price. * Expenses of sale. The following documents may show this information. * Purchase and sales invoices. * Real estate closing statements. * Canceled checks.

7

Businesses - Keep Records of Employment Tax

There are specific employment tax records you must keep. Keep all records of employment for at least four years. For additional information, refer to Recordkeeping for Employers and Publication 15, Circular E Employers Tax Guide.

8

Keep It All Safe

Be sure to back up your computer files and to keep your paper files in a dry, fireproof container. Label everything so that you will be able to find it at a moment's notice.

Additional Resources

Publication 463, Travel, Entertainment, Gift, and Car Expenses.

IRS Recordkeeping

Recordkeeping For Employers

Publication 15, Circular E Employers Tax Guide.

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