What records should I keep for tax purposes?
Tax records fall into four main categories: income, expenses, assets, and employment. Each has specific documentation you need to keep.
Income records include bank statements showing deposits, sales receipts, invoices you issued to clients, and 1099 forms from anyone who paid you $600 or more. Anything that shows money coming into the business needs documentation. If you have cash sales, keep a daily log or register tapes.
Expense records cover receipts, invoices from vendors, canceled checks, and credit card statements. The IRS wants proof that an expense actually happened and was business-related. For expenses over $75, you need the actual receipt. For travel and meals, note who you met with and the business purpose.
Asset records apply to anything with a useful life beyond one year. Equipment, vehicles, computers, furniture. Keep purchase receipts, financing documents, and depreciation schedules. You need these to calculate depreciation each year and to prove your cost basis when you eventually sell or dispose of the asset.
Employment records include payroll reports, W-4 and I-9 forms, timesheets, and documentation of tax deposits. If you have employees, every wage calculation and withholding needs a paper trail.
Retention periods vary. The general rule is three years from the filing date or due date, whichever is later. Employment tax records require four years. Asset records should be kept for the life of the asset plus three years after you dispose of it. If you underreport income by more than 25%, the IRS has six years to audit, so keep records accordingly if there’s any uncertainty.
Bank and credit card statements help but don’t replace receipts. Statements prove a transaction happened. They don’t always prove what was purchased or that it was business-related. A $200 charge at Home Depot could be job materials or could be for your house.
Working with a Detroit bookkeeping service helps ensure your records stay organized throughout the year rather than scrambling at tax time. The best system is one you actually use consistently. Digital storage works if files are backed up and organized by category and date. Paper files work if you have a consistent method. Full-service bookkeeping takes this off your plate entirely by maintaining your records as transactions happen.
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