Keeping business records for tax purposes can be completely overwhelming, but it’s critical in order to keep your business safe if you’re ever audited. The most overwhelming part of keeping business records is knowing what records are important. We’ll go through the Internal Revenue Service’s (IRS) recommendations on what to keep and how long to keep it.
What Kind of Business Records Should You Keep?
First, we need to identify what business records are important to keep. You should keep records showing your income and expenses, as well as any proof of tax deductions you plan to take. The IRS has a few recommendations on what to keep.
Proving income is pretty straightforward. You’ll want to keep records so that you can accurately pay your taxes.
Income records include:
- Cash register tapes
- Receipt books
- Deposit information (cash and credit sales)
Keeping records of your expenses is an important part of bookkeeping so that you can take deductions and lower your taxable income.
You’ll want to keep records (such as receipts or invoices) showing the following expenses:
- Loss of income (cancelled checks, unpaid invoices)
- Business meals
If you plan on deducting any of your assets you’ll also want to keep records on them. Business assets range from office furniture to equipment and even property. You’ll have to calculate the depreciation of each asset and the gains of any asset sold. In order to do that you’ll want to keep records on the following:
- When and how you acquired the asset
- Purchase price
- Cost of any improvements
- Deductions taken for depreciation
- How you used the asset
- When and how you disposed of an asset
- Selling price of asset
- Expenses associated with the sale of assets
How Long to Keep Business Records
In most cases the IRS recommends you keep your business records for a minimum of three years.
The IRS requires that you keep records for three years after the due date of the tax return or the date you filed the tax return, whichever is later. The period of limitations to file an amendment is three years; however the IRS can audit you up to six years later. After that you are no longer required to have your tax return or documentation.
Even if these tax deadline pass, make sure that your insurance company or creditors don’t require you to keep these records longer.
Download our FREE guide: What Business Records You Should Keep for Tax Purposes and keep it at your desk as a reminder.