Keeping good records not only makes tax filing easier and faster, but it can also help you monitor the progress of your business, prepare your financial statements, and support items reported on your tax returns. Here are three simple tips from the IRS to help you get organized:
1. Save Certain Business Records
The following are some of the types of records you should keep:
- Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.
- Purchases are the items you buy and resell to customers. Your supporting documents should show the amount paid and that the amount was for purchases.
- Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and a description showing that the amount was for a business expense.
- Assets are the property, such as machinery and furniture, that you own and use in your business. You need records to compute the annual depreciation and the gain or loss when you sell the assets.
2. Keep Employment Tax Records
The following information should be available for IRS review:
- Your employer identification number (EIN);
- Amounts and dates of all wage, annuity, and pension payments;
- Amounts of tips reported;
- The fair market value of in-kind wages paid;
- Names, addresses, social security numbers, and occupations of employees and recipients;
- Any employee copies of Forms W-2 that were returned to you as undeliverable;
- Dates of employment;
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them;
- Copies of employees’ and recipients’ income tax withholding allowance certificates;
- Dates and amounts of tax deposits you made;
- Copies of returns filed;
- Records of allocated tips; and
- Records of fringe benefits provided, including substantiation.
3. Store and Organize Your Records
Business owners should generally keep all employment-related tax records for at least 4 years after the date that the tax becomes due, or after the tax is paid, whichever is later. The length of time you should keep other documents depends on the action, expense, or event which the document records.