Keeping good records is an important part of running a successful business. This applies to all businesses, whether you have a couple dozen employees or just a few. Here are some questions and answers from the Internal Revenue Service (IRS) to help business owners understand the ins and outs of good recordkeeping.
Why should business owners keep records?
Good records will help you:
- Monitor the progress of your business
- Prepare financial statements
- Identify income sources
- Keep track of expenses
- Prepare tax returns and support items reported on tax returns
What kinds of records should owners keep?
Small business owners may choose any recordkeeping system that fits their business. You should choose one that clearly shows income and expenses. Except in a few cases, the law does not require special kinds of records.
How long should businesses keep records?
How long a document should be kept depends on several factors, which include the action, expense and event recorded in the document. The IRS generally suggests taxpayers keep records for three years.
How should businesses record transactions?
A good recordkeeping system includes a summary of all business transactions. These are usually kept in books called journals and ledgers, which business owners can buy at an office supply store. All requirements that apply to hard copy books and records also apply to electronic business records.
What is the burden of proof?
The responsibility to validate information on tax returns is known as the burden of proof. Small business owners must be able to prove expenses to deduct them.
How long should businesses keep employment tax records?
Business owners should keep all records of employment taxes for at least four years.
The Internal Revenue Service (IRS) website at www.irs.gov provides a wealth of helpful information for business owners. Be sure to check out.
Source: Tax Tip 2019-54, May 7, 2019. Content provided by the IRS www.irs.gov.