What Documents Do You Need to Save for the IRS?

The documents and receipts that you should save for tax purposes

12/05/2016

What Documents Do You Need to Save for the IRS?

Generating income, making purchases and paying your employees are just a few of the many financial transactions that occur during the normal course of business that leave a paper trail of supporting documents. It is important to save many of these documents because they contain information that can substantiate figures in your tax return and accounting files. The following information can help you identify which documents to save.
 

Gross Receipts

The first category of documents to save is gross receipts that record the source of income and the amounts.
 
These can include the following:
 
  • Receipt books
  • Invoices
  • Cash register tapes
  • Deposit information from cash and credit sales
  • Form 1099-MISC
 

Purchases

You must also save documentation regarding purchases that you resell to customers.
 
“If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products,” explains the IRS on its website. “Your supporting documents should show the amount paid and that the amount was for purchases.”
 
Supporting documents can include:
 
  • Canceled checks or other documents that record (1) payee; (2) sales amount; and (3) proof of payment, such as electronic funds transferred
  • Cash register tape receipts
  • Credit card receipts
  • Credit card statements
  • Invoices
 

Expenses

Aside from your purchases, any cost that you incur while conducting business is considered an expense and requires documentation specifying the amount. These documents also substantiate the fact that the expense was incurred for the business. Just as with purchases, canceled checks and other documents that record the sales amount and payee and provide proof of payment are acceptable, along with:
 
  • Cash register tape receipts
  • Account statements
  • Credit card receipts and statements
  • Invoices
  • Petty cash slips
 

Assets

You are required to keep records of your business’s assets, which can include things like property, machinery and furniture. You must compute the yearly depreciation of your assets as well as financial loss or gain for any assets you sell. Substantiating documents should provide information regarding the acquisition and price of the asset, any deductions taken for depreciation or casualty losses, and information regarding the sale of any assets.
 
Appropriate documents can include canceled checks and other documents with an identified payee that state and prove the sale amount. They can also include real estate closing statements and invoices for purchases or sales.
 

Deductions

Documentation is required if you deduct expenses incurred during travel or for entertainment, gifts or transportation. IRS Publication 463 outlines the specifics of how to document and deduct these types of expenses, which can be found at https://www.irs.gov/uac/about-publication-463.
 
The IRS requires business owners to keep tax documentation for four years after the date when the tax is due or paid, whichever comes later, and provides specific information about these regulations and the records to keep at https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-recordkeeping.
 
“When it comes to your taxes, it’s better to err on the side of caution,” recommends Motley Fool financial specialist Matthew Frankel. “The point is that even though an audit is unlikely, failure to properly document every single deduction and credit could potentially cost you lots of money that you shouldn’t have to pay, so tax documentation should be taken rather seriously.”
 
The best way to proceed cautiously is to talk to your tax professional about all the documents you should save for your specific line of work. Not only will it help you identify all applicable deductions, but it also will come in handy if you do experience an audit.

Published by North Shore Bank. Includes copyrighted material of IMakeNews, Inc. and its suppliers. 

Related Blog Posts

North Shore Bank Team Places Second in Spelling Bee Fundraiser

Full story...

High Turnout, Great Weather Fuels Another Successful Community Shredding Day

Full story...

Maximize Your Retirement Plan Contribution

Understanding your options for when you speak with an Investment Advisor Full story...