Taxes: Types of Records to Keep

Whether it's for personal income taxes or business taxes, it's always a good idea to keep certain records, mainly in case you are audited. For your personal taxes, it's probably enough to keep records of your income and past tax returns. Businesses, on the other hand, should keep more detailed records of income and expenses.

Not only are the stakes much higher, but businesses may be more vulnerable to audits than individuals. The business you are in will affect the type of records you need to keep for federal tax purposes, but the following is a list of certain types of records that should be kept in most cases. For a sample record system from the Internal Revenue Service (IRS), you can look at Publication 583.

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Gross Receipts

Gross receipts are the income you receive from your business, without any subtraction for costs or expenses. It's good practice to keep supporting documents that show the amounts and sources of your gross receipts. Documents that show gross receipts include the following:

• Cash register tapes
• Bank deposit slips
• Receipt books
• Invoices
• Credit card charge slips
• Form 1099-MISC

Purchases

Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased to manufacture into finished products. The following are examples of documents to keep for purchases:

• Cancelled checks
• Cash register tape receipts
• Credit card sales slips
• Invoices

Make sure the documents you keep show the amount paid and clearly state that the amount was for purchases.

Expenses

Expenses are the costs (other than purchases) that you incur to carry on your business. Any documents you keep to show expenses should clearly indicate that amount spent and that it was in fact a business expense. Examples of which types of documents can show business expenses are:

• Cancelled checks
• Cash register tapes
• Account statements
• Credit card sales slips
• Invoices
• Petty cash slips for small cash payments
• Payroll

Assets

Assets are the property, such as machinery and furniture, you own and use in your business. You must keep records to verify certain information about your business assets. You need records in order to determine the annual depreciation and the gain or loss when you sell the assets. Your records regarding your assets should show the following information:

• When and how you acquired the asset
• Purchase price
• Cost of any improvements
• Deductions taken for depreciation and casualty losses
• How you use the asset
• When and how you disposed of the asset, including selling price and expenses associated with the sale

This information can generally be shown through purchase and sales invoices, real estate closing statements, and/or cancelled checks.

Getting Legal Help

If you stay on top of it, keeping records for tax purposes should be easy and shouldn't require the assistance of a tax or legal professional. If you have any questions or concerns about the types of records you should keep, or other questions about starting or running a small business, you can contact a business organizations attorney in your area.

If you would like more information and resources about starting and running a business, you can visit FindLaw's Business Taxes section, including Keeping Business and Personal Taxes Separate.