Why keep records?

Everyone in business must keep records. See the Volunteer Resource Guide (Tab F) for a table on recordkeeping. Good records will help taxpayers do the following:

• Monitor the progress of their business
• Prepare their financial statements
• Identify source of receipts
• Keep track of deductible expenses
• Prepare tax returns
• Support items reported on tax returns

Except in a few cases, the law does not require any specific kind of records. Taxpayers can choose any recordkeeping system suited to their business that clearly shows their income and expenses.

The recordkeeping system should include a summary of business transactions. This summary is usually made in the taxpayers' books (for example, accounting journals and ledgers). The books must show the gross income, as well as the deductions and credits. For most small businesses, the business checkbook is the main source for entries in the business books. In addition, supporting documents must be kept.