The computer and internet era promised us a paperless society. Unfortunately, that is not always the reality when it comes to business documentation. It is important to keep records of all transactions, and while you can digitize your documents, the big question is… what should you keep and for how long?
It is important to keep records of all transactions in your daily/weekly/monthly bookkeeping. The IRS says accounting systems like QuickBooks provide summary information, but there are still supporting business documents that you should keep on hand.
You should keep track of all your income related to the business, also called gross receipts. These include: invoices, bank deposit slips, receipt books, and any Form1099’s you’ve received. If you sell retail products or services and use a cash register, it’s also important to keep the register tape and Point of Sale (POS) reports
Another set of supporting business documents relate to purchases and expenses. Examples would include; canceled checks, vendor invoices, credit card statements, and bank account statements (for debit card transactions). Make sure to take notes showing the business purpose.
If you travel for business make sure to keep track of all your related (non reimbursed) travel expenses. Business related travel does have to meet certain criteria, which are outlined here: Publication 463, Travel, Entertainment, Gift, and Car Expenses.
Property that you own for your business is considered an asset. For reporting purposes, you need to keep track of: when you purchased the item; what the original value of the item was; business use percentage, cost of any improvements made; as well as any deductions that you taken in regards to these items (such as depreciation). If it’s a real estate or automobile purchase keep the closing statements or loan/lease documents.
If you have employees, it’s also important to keep track of all records pertaining to Payroll including payroll expense and withholding related to employee and employer payroll taxes. To see a full list of which employment records to keep refer to Recordkeeping for Employers and Publication 15, Circular E Employers Tax Guide.
Yes, we may live in the not quite paperless society, but the IRS has the right to require proof in an audit scenario for perpetuity (if appropriate).