Record keeping is so important in any business—especially true when you are starting out. Getting in the habit early on in your business will help create good practice that you can carry throughout the years!
Why should I keep records?
There are so many reasons to keep good records! They 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. This is critical in helping you determine your company’s success. It also is the best way to ensure you get all the business write offs you are entitled to during tax season.
What kinds of records should I keep?
For most businesses, this is completely up to you! There are many different record keeping systems that can be custom suited to your business that will clearly show your income and expenses. The law does not require any special kind of records in most cases. However, the industry your business is in can affect the type of records you need to keep for federal tax purposes.
How long should I keep records?
A good rule of thumb is to keep your records for at least 4 years. There are some cases that you should keep them longer depending 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.
How should I record my business transactions?
Thankfully most records we use are online and create documents to support proof. For example any sales you have, purchases made, payroll, and other transactions usually have some sort of receipt or record. These documents contain information you need to record in your books. My favorite softwares to use are Quickbooks Online and Xero.
What is the burden of proof?
The burden of proof is how we show the IRS the facts of your business expenses. It is proving to them that you can deduct certain elements of expenses. It is your responsibility to keep this proof should the IRS question any expense/deduction on your business tax return. You can store your proof of receipts in most accounting softwares or in tools like DropBox or OneDrive.
How long should I keep employment tax records?
Keep all records of employment taxes for at least four years.
If you have any additional questions, please feel free to reach out to us. We’re happy to help in any way we can.