You may not give much thought to doing your taxes outside of tax season, but some of the expenses you pay during the year might qualify for money-saving tax credits or deductions come tax time. If you organize your tax records now, you’ll make tax filing easier and faster when you do them next year. It also helps reduce the chance that you’ll lose a receipt or statement that you need.
1. Save Business Records
- Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.
- Purchases are the items you buy and resell to customers. Your supporting documents should show the amount paid and that the amount was for purchases.
- Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense.
- Assets are the property, such as machinery and furniture, that you own and use in your business. You need records to compute the annual depreciation and the gain or loss when you sell the assets.
Such records may include cash register tapes, bank deposit slips, receipt books, and purchase and sales invoices. These records may also include credit card receipts, sales slips, canceled checks, account statements, and petty cash slips.
2. Keep Employment Tax Records
The following information should be available for IRS review:
- Your employer identification number;
- Amounts and dates of all wage, annuity, and pension payments;
- Amounts of tips reported;
- The fair market value of in-kind wages paid;
- Names, addresses, social security numbers, and occupations of employees and recipients;
- Any employee copies of Form W-2 that were returned to you as undeliverable;
- Dates of employment;
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them;
- Copies of employees’ and recipients’ income tax withholding allowance certificates;
- Dates and amounts of tax deposits you made;
- Copies of returns filed;
- Records of allocated tips; and
- Records of fringe benefits provided, including substantiation.
3. Store and Organize Your Records
Business owners should generally keep all employment-related tax records for at least 4 years after the tax is due, or after the tax is paid, whichever is later. The length of time you should keep other documents depends on the action, expense, or event the document records.
The IRS doesn’t require any special method to keep records, but it’s a good idea to keep them organized and in one place. This will make it easier for you to prepare and file a complete and accurate return. You’ll also be better able to respond if there are questions about your tax return after you file.
Business owners should review IRS Publication 583, Starting a Business and Keeping Records. Video and audio files explaining recordkeeping requirements are also available at http://www.irsvideos.gov/.