Whether you’re keeping records to prepare for tax season, to stay on top of bills, or to track purchases, the following tips will do more than keep you organized throughout the year. They’ll help you avoid the last-minute scramble to find a receipt or invoice—or, say, some document you need to prepare your tax return.
For the self-employed, good record-keeping is essential.
Why keep records?
Here are some top reasons to keep good records:
Records for tax purposes. On your tax return, anything you take or claim—a business deduction or credit, for example—and anything you report on your tax return, such as your income, must be verifiable. If your records are in place, and in order, preparing and e-filing your tax return will be easy.
Records as timelines. Records serve as timelines and timestamps. They can illustrate the financial health of your business and show where improvements are needed.
Records to show compliance. Any official forms or written agreements, like contracts, must be safely stored. It’s also important to show that your business complies with the latest regulations in your area and industry. The type of business you own (PC vs. LLC, for example) will impact your taxes since the rules for establishing a business can vary by state.
Records used for projections. Record-keeping is good for predictions and projections. Using records, you can plan for the future based on what’s happened in the past.
What types of records should I keep?
While conducting business, you might make purchases, sell products, manage payroll, or engage in other transactions. Organizing, storing, and being able to retrieve the documents that support your income, inventory, expenses, and assets is a must. Some of those documents include the following:
- purchase and sales invoices
- bank deposit slips
- account statements
- financial statements
- canceled checks
- credit card slips
- till rolls
- sales slips
- Form 1099-MISC
- Documents that show deductions for depreciation and casualty losses (for your assets)
Consider categorizing your records by type. One category could be legal/regulatory. Another could be financial. Keep taxes a separate category. The number of categories will depend on the size of your business.
How should I store my records?
To store your records, consider cloud computing. That way, you won’t be limited to a single device and can access your records anywhere at any time. This is especially important for those who live and work on-the-go.
How long should I keep my records?
How long you keep your records depends on your business’s requirements. It also depends on your industry and region. Generally, it’s a good idea to keep records for at least 7 years.
Here are TaxSlayer’s guidelines regarding the storage and disposal of your tax records.
Last updated on 01/28/2018.