Anne-Marie Saint-John, Alva, Long Island City, NY >
Good records are very important to your business. They will help you monitor progress, prepare your financial statements, track deductible expenses, prepare taxes, and support items reported on tax returns.
The records of a business can be divided into three categories: income, expenses, and capital expenses.
#1 – Income records.
Your business can receive money from various sources. Perhaps you sold your car to finance your business, or perhaps you received a business loan. You may receive income from the sale of goods and services to another business. Whatever the source of your income is, you must register it.
Business records should indicate the type of payment received, the date it was received, and the origin of the payment. While the information is fresh in your mind, write it down in your checkbook deposit register. If your business sells services to another business, you should receive an IRS 1099s form from those making the payment, showing how much you were paid. Keep all income records in one central place.
#2 – Records of Expenses.
Maintain proof of payment of bills by keeping copies of receipts, bills, credit card flyers, canceled checks, and receipts for rent payments. These are standard documents that support your business expenses. Each cost should appear reasonable and necessary to deduct your business expenses from your taxes.
#3 – Records of Assets.
When a purchase by your business represents a long-term benefit, such as a fax machine, building, car, or office furniture (items that generally last for a long time), track these assets separately from those for immediate use and consumption, such as office supplies. This is because the total cost of the resource cannot be deducted in the same year of purchase.
The IRS normally has three years to audit you and your business. For this reason, you should keep your records for at least three years. However, if you filed an incorrect tax report, the IRS can audit you for up to six years. If you commit fraud, the IRS can audit you for an unlimited amount of time. Some state agencies have a longer statutory statute of limitations than the IRS, so it is recommended that you keep all tax-related documents for more than three years.