Which Small Business Records Do You Need to Keep?

Business owners need to know which small business records to keep and for how long. The IRS suggests keeping supporting documents that provide validation of your business. To understand what qualifies, think of your small business records in these categories.

Documents that demonstrate income

In accounting terms these are gross receipts. Your documents should show both the amounts and sources of your income.  Included are:

• Cash register tapes
• Records showing deposits in and out of your accounts
• Receipt ledgers and/or books
• Invoices
• Forms 1099

Business costs incurred

These are your expenses. Keeping careful small business records will be important at tax time or if you ever need to prove a loss. Supporting documents show both the amount paid and a description of the business expense. These could include:

• Banking documents: statements, deposit slips, or canceled checks that show the payee, the amount, and that provide proof of payment or electronic funds transfer
• Store cash register receipts
• Credit card receipts and statements
• Invoices
• Petty cash slips

Items the company buys

These are purchases. If you manufacture your product, the cost of materials and parts are considered purchases. These small business records should show the amount paid and to whom. Included are:

• Banking documents as mentioned above
• Store cash register receipts
• Credit card receipts and statements
• Invoices

Expenses for transportation, entertainment, and travel

You want to take advantage of tax deductions for transportation and entertainment costs associated with doing business. To deduct these, you’ll have to retain the small business records that prove certain aspects of the expense.

Property, including machinery and furniture, which you own and use in your business

These are your business assets. These small business records include those you use to compute annual depreciation and that demonstrate the loss or gain you’ll receive from selling the assets. Keep documents that show:

• When and how you purchased the item
• Purchase price
• Improvement cost
• Tax deductions taken for depreciation, and/or casualty losses
• How the asset is used

For selling, you need to show:

• When and how you disposed of the item
• Selling price
• Costs associated with the sale (advertisements, shipping, etc.)

Small business records in this category include:

• Invoices
• Real estate closing statements
• Banking documents as mentioned above

Records related to employment should be kept for several purposes including taxes, insurance, and industry regulations. As for how long you keep your small business records, the IRS Small Business Information page provides small business records guidelines based on your tax filing standing and IRS retention periods.  A good rule of thumb is to keep all business records for seven years.  That period will cover most regulatory, insurance, and legal requirements of your business.

Small Business Records Experts

At Ernst Wintter & Associates LLP, we specialize in small business accounting and tax needs. Contact us to learn about our services and how we can help you with your small business.