Records The IRS say Small Businesses Should Keep

The IRS mandates that every small business has record retention processes in place in case your business practices ever need to be revisited or audited. Some standards are suggested and some are mandatory. Here is a list of records the IRS says you should keep. 

1. 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:

2. 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 identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show that the amount was for purchases.  Documents for purchases include the following:

   • Canceled checks or other documents reflecting proof of payment/electronic funds transferred

   • Cash register tape receipts

   • Credit card receipts and statements

   • Invoices

3. Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item purchased or service received that shows the amount was for a business expense. Documents for expenses include the following:

   • Canceled checks or other documents reflecting proof of payment/electronic funds transferred

   • Cash register tape receipts

   • Account statements

   • Credit card receipts and statements

   • Invoices

4. Travel, Transportation, Entertainment, and Gift ExpensesIf you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expenses.

5. 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. Documents for assets should show the following information:

   • When and how you acquired the assets

   • Purchase price

   • Cost of any improvements

   • Section 179 deduction taken

   • Deductions taken for depreciation

   • Deductions taken for casualty losses, such as losses resulting from fires or storms

   • How you used the asset

   • When and how you disposed of the asset

   • Selling price

   • Expenses of sale

The following documents may show this information:

• Purchase and sales invoices

• Real estate closing statements

• Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred

6. Employment taxes There are specific employment tax records you must keep.  Keep all records of employment for at least four years.