Simplify tax time and add peace of mind around any potential audit investigation by maintaining these documents on file. Whether you prefer paper records or electronic is up to you. Just make sure you have these records in place for 7-10 years. Erroring on the side of caution here is not a bad thing.
Although you can access your bank account online and see past bank statements, it is always a good idea to download or print each statement and keep a copy for your records. Banks do not always maintain records as far back as the IRS asks for documentation during an audit.
Invoices with Proof of Payment
Always attach proof of payment to the invoice if possible for easy record keeping. Keep all cash register receipts if applicable, and if you use square, paypal, or other service for processing credit cards, print or download these records annually for your records. Document all cash transactions with receipts as they occur and keep these as well.
Receipts for business purchases are also important to hold on to. You can take a picture of the receipt and attach it to the entry in most bookkeeping software. Otherwise, a picture of the receipt is useful because it won’t fade over time. If the notation on the receipt isn’t easily identifiable as to the item that was purchased, make a note at the top of the receipt indicating what the receipt was for. For more expensive items or any travel related expenses, keeping a more detailed description pamphlet or print out about the product or service is also necessary.
For any of the more expensive purchases made that have a contract, keep it. This includes machines or tools, vehicles, and real estate. These come in handy for calculating depreciation.
Similar to purchase contracts, keep any loan or promissory note for any business debt, including cash advances.
Maintain a record of all payroll transactions, including direct deposits, bonuses paid, time cards, reimbursements, payment to contractors, and cash paid.
It is a good idea to keep monthly profit and loss statements and balance sheets as well as annually, general ledger, retirement summary and investment statements.
Hang on to the tax returns and all associated documents.
Keep proof of licensure if required professionally, as well as city and state requirements. This includes proof of bonds, exams and certifications necessary to do your specific business.
With a system in place to securely store these priority documents, you can rest assured you have the documentation needed for any tax or audit consideration. Please contact a tax professional with any questions or assistance with your tax needs.
Tax Tips for the Self-Employed
An Overview of the Net Operating Loss Tax Provisions in the CARES Act
How To Decrease Your Small Business Debt? A Step-By-Step Guide
Why Every Small Business Needs a Bookkeeper?
Tax Credits That Could Benefit Small Businesses
Why You Should, and Shouldn’t, Apply for a Tax Extension