Whether you keep your own books or hire someone to do it for you, keeping track of your business income and expenses is a significant aspect of your job as a business owner. The type of records you keep depends on the type of business you own. If you are selling a product, lease office space, and deal with vendors, suppliers and individual customers, your system will be more in-depth than someone who works from a home office selling editing services, for example.
Any recordkeeping system should clearly show your income and expenses. Keep accurate records in ledgers and journals to show a summary of your business transactions. Your books must show your gross income, as well as your deductions and credits. For most small businesses, this information is reflected in the business checkbook.
As a business owner, you should keep the records of any transactions that generate supporting documents, such as sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents support the entries you make in your books and on your tax return. Organizing your files by year and type of expense should keep your documents orderly and easy to access if and when you need them. The IRS offers detailed information to help new business owners keep accurate records.
Some of the records you should keep include:
These are any income you receive from your business. Documents show the amounts and sources of your gross receipts, and include cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips, and forms 1099-MISC.
These are items you buy and resell to customers. For a manufacturer or producer, this includes the cost of all raw materials or parts purchased. Supporting documents that indicate the amount paid and that the amount was for purchases include canceled checks, cash register tape receipts, credit card sales slips and invoices.
These are the other costs you incur to carry on your business, excluding purchases. Show the amount paid and indicate the document is a business expense. Documents for expenses include canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
Travel, Transportation, Entertainment, and Gift Expenses
Be able to substantiate these as elements of your business expenses. For additional information on how to prove certain business expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.
These are resources, such as machinery and furniture, which you own and use in your business. Your records must verify certain information about your business assets and are needed to compute the annual depreciation, and the gain or loss, when you sell the assets. Your documents for assets include purchase and sales invoices, real estate closing statements and canceled checks. Documentation should contain 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 and expenses of sale.
Keep all records of employment for at least four years.