All businesses need to keep records. To be successful, you need to have a business plan or model, appropriate business type, appropriate accounting method, a good bookkeeper, and the ability to use all this information to your advantage. Part of this process includes the retention of receipts.
Recordkeeping Is Essential to Your Business
Properly storing your receipts and other business records can only strengthen your business and streamline its operations. Below, we outline several key benefits of a strong records retention policy.
Monitor your business’ progress: Records will help you see how your business is doing. Are you improving? Which items are selling? What changes should you make in your business? Accurate records help any size of business. You need to know how you are doing to increase your ability to succeed.
Prepare financial statements: To properly prepare a profit and loss statement and balance sheets, you need your receipts.
Identify the source of receipts: While in business, you may work with many vendors and have many sources of income and expenditures. Proper receipts will help you separate taxable and nontaxable income and identify your actual deductions.
Keep track of deductible expenses: In business, things get busy — and that is a good thing. Keeping receipts of all your transactions will help you claim all of your possible deductions.
Prepare tax returns: Business receipts help recreate a snapshot of your tax year. To reconstruct this picture and come out with the best return legally possible, you need to keep your receipts.
Support items on your tax return: You must always have records that back up your tax return. The IRS frequently audits businesses, and you need to have documents that support your tax return.
What Other Business Records Should I Keep?
- Business transactions
- Previous tax returns
- Travel, entertainment, transportation, and gift expenses
- Employment taxes
- Assets and business property
- Canceled checks and bank statements
- Credit card statements
- 1099, K1, W2, and other forms
How Long Should I Keep These Records?
The IRS states that you must keep these records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, you should keep most records for three years. If you have employees, those records should be held for four years or longer. My recommendation is to keep all tax records for at least five years after assessment. If you want to be safe, you can hold them closer to seven years.
If you have questions about receipts or bookkeeping, please reach out to our office. We are happy to provide a complimentary consultation and go over the business tax services our firm offers.