Small business owners should keep good records. This applies to all businesses, whether they have a couple dozen employees or just a few, whether they install software or make soft-serve, cut hair or lawns. Keeping good records is an important part of running a successful business.
Why keep records?
- Monitor the progress of a business
- Prepare financial statements
- Identify income sources
- Keep track of expenses
- Prepare tax returns and support items reported on tax returns
What should be kept?
Small business owners may choose any record-keeping system that fits their business. They should choose one that clearly shows income and expenses. Except in a few cases, the law does not require special kinds of records.
For how long must records be kept?
That depends on the action, expense and event recorded in the document. The IRS generally suggests taxpayers keep records for three years.
How should transactions be recorded?
Summaries of all business transactions 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’s 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 employment tax records be kept?
Business owners should keep all records of employment taxes for at least four years.
Source: Internal Revenue Service