Resources:
Why YOU Should Care:
Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of income and expenses, and prepare your tax returns. Electronic recordkeeping is growing in popularity as it occupies less physical space in your workplace and is easily searchable. However, it’s crucial to have the proper method in place.
Physical Records
You may maintain your records physically. This generally involves a system wherein actual copies of receipts and transaction documents are maintained in a filing cabinet or other storage unit, organized by year and type.
Note: If you have any documents requiring original signatures, physical copies must be retained.
Electronic Records
You may find it easier to maintain your records electronically. This may be done either by scanning physical documents into image files and storing them on your computer or using a more-sophisticated software-based program to maintain your records.
The IRS has issued strict guidelines on the requirements of electronic recordkeeping. If you are new to the process, a software program may provide much needed guidance on what records to keep. While some of the stricter guidelines pertain to taxpayers with over $10 million in assets at year-end, it never hurts to have a proper system in place from the start – you never know how your business may grow!
Remember:
- All documentation requirements that apply to a hard copy records system also apply to an electronic system. Regardless of how your records are stored, they must provide the requisite support for your business transactions.
- Records stored electronically must be maintained for the same length of time as records stored physically.
- Upon audit, the IRS may test your electronic recordkeeping system for soundness, so its critical that you maintain clear and proper records regardless of storage method.
Thanks for posting this and for posting resources for further review. As a tax attorney, I have seen time and time again how recordkeeping is so vitally important. The IRS is not at all forgiving to those who are disorganized or otherwise unable to substantiate claimed income and deductions during audits! Beyond audits, there are many tax and business reasons for properly maintaining financial and non-financial records. For example, a business may need to provide several prior years of bank statements and tax returns in connection with setting up pay plans or dealing with trust fund interviews. The IRS may not approach a business until years later about a return they do not have on file. Organizing and maintaining data is crucial when you are inevitably forced to go up against such a powerful governmental entity!