Your recordkeeping system should include a summary of every transaction that takes place in your business’ name. Make sure you maintain and update a summary of all business transactions.
Logging and Tracking Business Tax Records
Allocate space in your business books, accounting journals and ledgers for your gross income, deductions and credits. Also, remember that your business checking account serves as the primary resource when adding entries to your books. If you forget to log a transaction, review the records documented by the bank where you opened your business banking account.
Accounting Software For Maintaining Business Records
It is important to use accounting software to organize your business records. There are many choices and most Arizona companies use QuickBooks, Sage Intacct, and Bill. Accounting software helps you adhere to basic recordkeeping principles. For guidance about business tax records, see the IRS’ Starting a Business and Keeping Records.
As a good business practice, it is essential that you maintain a record of your supporting documents, from sales slips and paid bills to invoices and receipts. Even deposit slips and canceled checks fall into this category. These items contain information in your books as well as on your tax return.
Make sure to keep them in an orderly and safe place for preservation purposes, and organize these documents based on the year and type of income or expense they pertain to.
Business Records You Should Keep
You should keep the following types of business records:
- Gross receipts.
- Purchases.
- Expenses.
- Assets.
- Employment taxes.
Gross Receipts
One type of business tax record that you must keep is referred to as gross receipts. It refers to documentation that indicates income received by your business in exchange for products or services. This category of business records includes cash register tapes, cash sales, credit card sales, invoices, receipt books, and Form 1099-MISC documents for each person who did work for you in any given tax year.
Purchases
Any products that you buy and resell to your customers are considered purchases. For manufacturers and producers alike, purchases include the cost of all raw materials or parts that you buy with the intention of turning them into finished products.
Your supporting documents should identify the payee, how much you paid, date of the payment, and detailed description explaining the item’s intended use. This information will prove that the amount of money you spent was put toward business-related purchases.
Expenses
This category of business tax records refers to all of the costs that accrue within business-related matters. When documenting your expenses, make note of how much you paid, whom you paid, and when you paid the expense. Also, describe what you paid for and include proof of payment to back up your claims.
Assets
An asset refers to any form of property that you both own and make use of as part of your business endeavors. Make sure you maintain records of your assets, and ensure that you have detailed information on record regarding your business assets.
This data makes it easier for you to compute the annual depreciation as well as the gain or loss of the asset when the time comes to sell it. Documents for assets should indicate when and how you acquired your business assets. Maintain records of the purchase price, the cost of any improvements, depreciation-related deductions, and other details regarding how you acquired, and how you used or plan to use the asset.
Employment Taxes
This category of business tax records entails information regarding your employees. It is required that employers retain employment tax records for a minimum of four years. For insight into what the IRS expects of you as an employer regarding employment taxes, you can reference the IRS’ Employment Tax Recordkeeping.
Do you have questions about which documents you should retain for your business? We are are happy to answer your questions. Call us today.