What Record keeping and Receipts must self-employed individuals keeps for the IRS?
The next topic we need to discuss is recordkeeping. You must keep receipts, sales slips, invoices, bank deposit slips, canceled checks and other documents.These documents, either electronic or paper files, can substantiate items of income, deductions, and credits. Keeping these records will help you pay only the tax you owe. Unless you have records showing the sources of your receipts, you may not be able to prove that some are non-business or non-taxable.
Keeping Records and Receipts for IRS – Record Retention
You need good records to monitor the progress of your business. Good records can show whether your business is improving, which items are selling, or what changes you need to make.Good records can increase the likelihood of business success. You may forget expenses when you prepare your tax returns unless you record them when you pay them. You need good records to prepare accurate financial statements, such as profit and loss statements and balance sheets. These statements can help you in dealing with your bank and creditors to establish your earnings from self-employment. Your records should show the amount of earnings reportable for self-employment tax purposes. If the IRS audits your income tax return, you may be asked to support the entries on your return with sales slips, invoices, receipts, bank deposit slips, canceled checks, and other documents.
What support is needed to deduct expenses for IRS?
These items of support are necessary for you to have adequate and complete records. Visit the IRS Video Portal at www.irsvideo.gov and check out the series, Your Guide to an IRS Audit. This series of videos takes you through the steps of an audit from notification to closing. Also be sure to safeguard your records to prevent theft or loss due to natural disaster. In case of a disaster, planning is an important part of safeguarding your records. Being able to access your records will help you resume business operations more quickly. Take advantage of paperless recordkeeping, including filing your returns and paying your taxes electronically.
Downloading Bank Statements to IRS
Many people retrieve bank statements and other documents online, an excellent way to secure financial records. However, we encourage you to download your bank statements on a regular basis. Be sure to back up your electronic files and store them in a safe and secure location.
Bank Statements and the IRS
You can periodically copy them onto a CD, flash drive, or other electronic storage device and send it to a trusted person in another location for safekeeping in case your normal computer backup systems aredestroyed. Also, many retail stores sell computer software packages that you can use for recordkeeping. You should also document valuables and business equipment. One option is to photograph or video the contents of your home and business, especially items of great value.
IRS Disaster Loss Workbooks for individuals, Publication 584
You should store this documentation with someone outside your geographic area to reduce risk. The IRS has Disaster Loss Workbooks for individuals, Publication 584 and Business Publication 584-B, that can help you compile a room-by-room list of your belongings and business equipment.This will help you recall and improve the market value for items in insurance and casualty loss claims if needed. How quickly you get back to business after a disaster often depends on emergency planning today.Start planning now to improve the likelihood that your business will survive and recover.