Records are the support for your business transactions, the inputs for your accounting system and the support for your income and deductions should they be needed upon IRS examination. Therefore, keeping appropriate records is important.
In general, records should identify the business transaction and all relevant details including the date and amount of the transaction. If you operate multiple businesses, make sure you keep separate books and records for each business.
Following are basic records that are needed for your accounting system or should be maintained for income tax purposes:
- Business bank account statements and reconciliations
- Records identifying the source of your receipts, e.g. bank deposit slips, invoices, Forms 1099s received…
- Records of general business expenses, e.g. cancelled checks, account statements, credit card sales slips, invoices…
- Copies of contracts and agreements
- Financial statements and reports
Generally you should keep your records for income tax purposes for three to seven years. However, certain records may need to be kept longer. For example, if the record relates to property that is held and used for multiple years, you should generally keep those records until you dispose of the property. More detailed information on records retention is available from various sources including the IRS.
Article written by Richard R. Dahl, a CPA and Senior Tax Manager with Security National Life Insurance. The content of this article is not intended as tax advice and cannot be used for avoiding tax penalties or promoting or recommending any transaction. Individual circumstances should be discussed with a qualified tax professional.