Publication 583 - Recordkeeping - Why Keep Records?
This part explains why you must keep records, what kinds of records you must keep, and how to keep them. It also
explains how long you must keep your records for federal tax purposes. A sample recordkeeping system is
illustrated at the end of this part.
Why Keep Records?
Everyone in business must keep records. Good records will help you do the following.
Monitor the progress of your business. You need good records to monitor the progress of your business.
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.
Prepare your financial statements. You need good records to prepare accurate financial statements. These
include income (profit and loss) statements and balance sheets. These statements can help you in dealing with
your bank or creditors and help you manage your business.
- An income statement shows the income and expenses of the business for a given period of time.
- A balance sheet shows the assets, liabilities, and your equity in the business on a given date.
Identify source of receipts. You will receive money or property from many sources. Your records can identify
the source of your receipts. You need this information to separate business from nonbusiness receipts and taxable
from nontaxable income.
Keep track of deductible expenses. You may forget expenses when you prepare your tax return unless you
record them when they occur.
Prepare your tax returns. You need good records to prepare your tax returns. These records must support the
income, expenses, and credits you report. Generally, these are the same records you use to monitor your
business and prepare your financial statements.
Support items reported on tax returns. You must keep your business records available at all times for
inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported.
A complete set of records will speed up the examination.
Back to The IRS Advises Direct Sellers page
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