Page 14 - Starting Business

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Kinds of Records To Keep Supporting Documents 14:08 - 14-Jan-2015

Except in a few cases, the law does not require any spe- Purchases, sales, payroll, and other transactions you
cific kind of records. You can choose any recordkeeping have in your business generate supporting documents.
system suited to your business that clearly shows your in- Supporting documents include sales slips, paid bills, in-
come and expenses. voices, receipts, deposit slips, and canceled checks.
The business you are in affects the type of records you These documents contain information you need to record
need to keep for federal tax purposes. You should set up in your books.
your recordkeeping system using an accounting method
that clearly shows your income for your tax year. See It is important to keep these documents because they
Choosing an Accounting Method, earlier. If you are in support the entries in your books and on your tax return.
more than one business, you should keep a complete and Keep them in an orderly fashion and in a safe place. For
separate set of records for each business. A corporation instance, organize them by year and type of income or ex-
should keep minutes of board of directors' meetings. pense.
Your recordkeeping system should include a summary Gross receipts. Gross receipts are the income you re-
of your business transactions. This summary is ordinarily ceive from your business. You should keep supporting
made in your books (for example, accounting journals and documents that show the amounts and sources of your
ledgers). Your books must show your gross income, as gross receipts. Documents that show gross receipts in-
well as your deductions and credits. For most small busi- clude the following.
nesses, the business checkbook (discussed later) is the
main source for entries in the business books. In addition, Cash register tapes.
you must keep supporting documents, explained later. Bank deposit slips.

Electronic records. All requirements that apply to hard Receipt books.
copy books and records also apply to electronic storage
systems that maintain tax books and records. When you Invoices.
replace hard copy books and records, you must maintain
the electronic storage systems for as long as they are ma- Credit card charge slips.
terial to the administration of tax law. An electronic stor-
age system is any system for preparing or keeping your Forms 1099-MISC.
records either by electronic imaging or by transfer to an
electronic storage media. The electronic storage system Inventory. Inventory is any item you buy and resell to
must index, store, preserve, retrieve, and reproduce the customers. If you are a manufacturer or producer, this in-
electronically stored books and records in legible format. cludes the cost of all raw materials or parts purchased for
All electronic storage systems must provide a complete manufacture into finished products. Your supporting docu-
and accurate record of your data that is accessible to the ments should show the amount paid and that the amount
IRS. Electronic storage systems are also subject to the was for inventory. Documents reporting the cost of inven-
same controls and retention guidelines as those imposed tory include the following.
on your original hard copy books and records. Canceled checks.
The original hard copy books and records may be de-
stroyed provided that the electronic storage system has Cash register tape receipts.
been tested to establish that the hard copy books and re-
cords are being reproduced in compliance with IRS re- Credit card sales slips.
quirements for an electronic storage system and proce- Invoices.
dures are established to ensure continued compliance
with all applicable rules and regulations. You still have the These records will help you determine the value of your in-
responsibility of retaining any other books and records ventory at the end of the year. See Publication 538 for in-
that are required to be retained. formation on methods for valuing inventory.
The IRS may test your electronic storage system, in-
cluding the equipment used, indexing methodology, soft- Expenses. Expenses are the costs you incur (other than
ware and retrieval capabilities. This test is not considered the cost of inventory) to carry on your business. Your sup-
an examination and the results must be shared with you. If porting documents should show the amount paid and that
your electronic storage system meets the requirements the amount was for a business expense. Documents for
mentioned earlier, you will be in compliance. If not, you expenses include the following.
may be subject to penalties for non-compliance, unless Canceled checks.
you continue to maintain your original hard copy books
and records in a manner that allows you and the IRS to Cash register tapes.
determine your correct tax.
For details on electronic storage system requirements, Account statements.
see Revenue Procedure 97-22, available at www.irs.gov/
Tax­Exempt­Bonds/Revenue­Procedures. Credit card sales slips.

Page 12 Publication 583 (January 2015)