Recordkeeping for businesses might be boring, annoying, you name it, but it is still your obligation to have a good recordkeeping system. What documents to keep? How long to keep? How to keep? Let me summarize it here for you and give you some personal recommendations.
Any business is required to have a summary of business transactions. Income transactions should be supported by invoices, bids, agreements, sales slips, forms 1099-Misc, and/or other written arrangements. Expenses should be supported by receipts, paid bills, cell phone records, mileage logs, credit card charge slips, cash receipts etc. Bank and credit card statements might not be enough to support your business transactions in case of audit. Here’s a detailed list from the IRS: https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep
Important! Electronic records are allowed as long as they are complete, clear, and accurate. That is the way to get rid of numerous boxes with receipts, invoices, bank statements, mileage logs etc. There’s a bunch of different apps today that you can use to store and organize your business documents. And they are pretty easy and convenient to use. So, what do I use? For all my receipts I use ReceiptBank app. It takes some time to set it up once (all the categories you need for income and expenses, suppliers, customers), but it is worth it. Download the app to your phone, and voila! For instance, at the gas station: get your receipt, take an image through the app, one click to submit. That’s it. Through away your paper copy. Bonus: it syncs with Quickbooks online! I also use Dropbox: set up an app on your phone, and save all you need directly to your online account in two clicks. Bonus: nothing is lost if your computer is broken! The last, but not the least - mileage log app. YOU DO NEED IT, if you use a mileage deduction, it is a must-have. The most popular one is MileIQ – easy to use, straightforward. Bonus: it is free for up to 40 trips per month!
How long to keep your records?
- Generally, for 3 years from when a tax return was due or was filed, whichever is later.
- Employment documents must be kept for at least four years.
- Records related to the business property should be kept even longer, considering they might be sold, exchanged, transferred etc.
ATTENTION! Business owners should always keep business funds separate from personal funds. If it is not done, you will have much more chances to get your deductions denied in case of audit. Besides you might need to provide your personal bank statements to support your business deductions. Would you feel comfortable doing it?
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