In today’s day and age the concept of keeping receipts seems outdated to most people. However, if you are a business owner this concept doesn’t ring true. All businesses need to keep records. To be successful, you need to have a business plan or model, appropriate business type, appropriate accounting method, a good bookkeeper, and the ability to use all this information to your advantage. Part of this process includes the retention of receipts.
Your records can identify the sources of your income. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.
Recordkeeping Is Essential to Your Business
Properly storing your receipts and other business records can only strengthen your business and streamline its operations. Below are several key benefits of a strong records retention policy.
Monitor your business’ progress: Records will help you see how your business is doing. Are you improving? Which items are selling? What changes should you make in your business? Accurate records help any size of business. You need to know how you are doing to increase your ability to succeed.
Prepare financial statements: To properly prepare a profit and loss statement and balance sheets, you need your receipts.
Identify the source of receipts: While in business, you may work with many vendors and have many sources of income and expenditures. Proper receipts will help you separate taxable and nontaxable income and identify your actual deductions.
Keep track of deductible expenses: In business, things get busy — and that is a good thing. Keeping receipts of all your transactions will help you claim all of your possible deductions.
Prepare tax returns: Business receipts help recreate a snapshot of your tax year. To reconstruct this picture and come out with the best return legally possible, you need to keep your receipts.
Support items on your tax return: You must always have records that back up your tax return. The IRS frequently audits businesses, and you need to have documents that support your tax return.
What Other Business Records Should I Keep?
· Business transactions
· Previous tax returns
· Travel, entertainment, transportation, and gift expenses
· Employment taxes
· Assets and business property
· Canceled checks and bank statements
· Credit card statements
· 1099, K1, W2, and other forms
How Long Should I Keep These Records?
Generally, you should keep most records for three years. If you have employees, those records should be held for four years or longer. We recommend you keep all tax records for at least five years after assessment.
If you have questions about which accounting method is best for your organization, let’s chat! Schedule a free consultation or call us at 603-541-7485 to speak with our experienced accounting team! We’ll be happy to ensure your records are always accurate.