The importance of keeping track and reporting your taxes cannot be stressed enough. Proper recordkeeping will certainly help you and your business in many areas, and income taxes that you are required to pay will be based on your net profit. To correctly figure your net profit total your gross profit (which is money actually received) and reduce it by your expenses (cash and check deductions). The more deductions you have the lower the net profit will be and thus the lower your income taxes become.

It’s imperative that you save and record EVERYTHING. That cannot be said too many times. Save! Save! Save! Every receipt, every invoice, for everything you do within your business. You will also need written documentation on everything that goes into and out of your bank account.

If you received non-taxable income, note this information in your records. Itemize every single deposit you make into your account and record every check or withdrawal as well. Keep all bank statements (copies or images of cancelled checks can be obtained if necessary, from your bank, generally for a fee.  If preferred, you can obtain check copies with your statements, again, for a fee).  File all of these things by month and year for at least seven (7) years or more. Doing so will ensure that you are organized when tax time arrives and have records available if necessary, for an audit.

Again, keep a detailed, itemized account for everything involving your business. Every bill, every payment sent and received, and every receipt.  Not only could you be holding tax saving deductions, but if you’re ever audited you will definitely be glad you kept detailed records.

The following is a generalized list of things you should keep for references; this list is also available on www.irs.gov, where you can visit them any time for more information regarding all your tax related questions.

• Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following:

• Cash register tapes
• Bank deposit slips
• Receipt books
• Invoices
• Credit card charge slips
• Forms 1099-MISC

• Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for purchases. Documents for purchases include the following:

• Canceled checks
• Cash register tape receipts
• Credit card sales slips
• Invoices

• Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Documents for expenses include the following:

• Canceled checks
• Cash register tapes
• Account statements
• Credit card sales slips
• Invoices
• Petty cash slips for small cash payments
• Travel, Transportation, Entertainment, and Gift Expenses
  If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses.  For additional information on how to prove certain business expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.
  

• Assets are the property, such as machinery and furniture that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets.
• Employment taxes
  There are specific employment tax records you must keep.  Keep all records of employment for at least four years.  For additional information, refer to Recordkeeping for Employers.