Question: What Business Records Do I Need to Support Tax Deductions and Credits?
Good records are the heart of any business, and one of the most important reasons to keep good records is that they are needed to support your business activities, including deductions and credits. If you want to avoid getting penalized for taking deductions without records, you will need to know what constitutes acceptable records. Here is a method of setting up a business record keeping system to help you keep great records and minimize IRS issues.
Answer:
Work on this principle: "You can't deduct it if you can't find the record." So, the first, and probably the most important, task you have in business record keeping is what I call CAPTURE. That is, you must gather up the records. If you don't capture the records, you won't have anything to substantiate to the IRS, and you won't be able to take those deductions and credits.
What to Capture
Here is a quick list of records to capture:
- Income/Receipts. Keep all deposit slips, and be sure to note what customer the checks were from. Keep register tapes and credit card charge slips from customers. Keep invoices you have sent out.
- Purchases and Recurring Expenses. Keep all bank and credit card statements, canceled checks (use duplicate checks!), and credit card slips or receipts from in-person purchases. Keep all invoices and other receipts. And don't forget to use petty cash slips so you can capture all those small cash expenditures.
- Travel Expenses. Keep a log of all travel by car; log every trip - when and where you went, who did you see,and why. Keep and receipts for all expenditures for air travel, lodging, and meals.
- Assets. Record all information about business assets, starting with the purchase price and including setup, delivery, and training. Keep track of maintenance and other other expenses for use of the asset, and don't forget to record accumulated depreciation.
- Employment Taxes. Keep all employment tax records for at least four years.
