GOOD RECORD KEEPING

What Documentation Is Essential?

The IRS requires that some form of documentation be kept for any income and all expenses and purchases that you make for your small business. This involves a large number of items for most businesses: All bank statements, all canceled checks and all receipts are essential. All accounts - both personal and business are subject to auditing and all invoices and sales slips may be needed to verify your claims. Business expenses that are paid with cash also must be kept on file. You can do this through a petty cash sheet or on a simple notebook.

Keeping accurate electronic records are just as important. Your credit cards and bank records recorded online are all subject to auditing and therefore you need to keep them organized. They should not be your only records about expenses, though. For example, if there is a notation that you spend $100 at Wal-Mart, that could have been on the latest toys for your children or on software for your business, so record exactly what it is. Details are essential!

For more details of how to make sure your tax records are kept correctly, and that you are claiming for everything allowed, download our Free Tax Guide.

Go here for other sources of information designed to make your tax returns easier.