Tax-Masters, Inc. | 6127 Executive Blvd | Rockville MD| 20852

Office 301.230.0200 | Fax 301.230.0203

Record keeping 101 for Individual Tax Returns.

Why do I need to keep records anyway?...

Monitor the progress of your business.

Records can show how your business is improving and what changes need to be made which increase the likelihood of the success of your business.

Prepare financial statements.

Good financial statements (profit and loss, balance sheets, etc.) can be integral in dealing with your bank and creditors. They want to see you are organized and well maintained.

Identify source of receipts

As a business owner you will receive cash and assets from several sources. Good records will help you differentiate between taxable and nontaxable income.

Keep track of deductible expenses.

It is extremely difficult to remember all your deductions when tax time rolls around. Recording the expense when it incurs ensures you don't miss out on any important tax breaks.

Prepare and support items reported on your tax return.

Income, expenses and credits reported on your tax return must be supported by documentation. You must keep your business records available for inspection by the IRS at all times. A complete set of records will speed up the examination saving you time and money.

What kind of records does the IRS want me to keep?....

Income:

•Cash register tapes.

•Bank deposit slips.

•Receipt books.

•Invoices.

•Credit card charge slips.

•Forms 1099-MISC.

Expenses:

•If payment is made by check:

1.Check Number

2.Amount

3.Payees Name

4.Date the check amount was posted to the account by the financial institution.

•If payment is made by electronic funds transfer:

1.Amount transferred.

2.Payees name.

3.Date the transfer was posted to the account by the financial institution.

•If payment is made by credit card:

1.Amount charged.

2.Payees name.

3.Transaction date.

NOTE: Proof of payment or an amount by itself, does not establish you are entitled to a deduction. Proof of payment along with proof you incurred the cost will properly substantiate your expenses.

How long do I need to keep all these records?...

The period of limitations vary per item on the return as well as per the situation of the individual.  The quick answer...seven years is sufficient for pretty much all situations

If you have been to Tax-Masters lately you already know that we scan all your documents into a database for your convenience (a free service). This service provides our clients the ease of mind that their documents are secure and accessible should the IRS need to review past items.

Now that you know all the tools you will need to ensure that your business never lose an audit here are a few extra tips that will help save you time and money around tax time:

•In the case of one owner multiple businesses, each business MUST have SEPARATE records.

•In the case of a couple filing married filing joint, each business practice in a separate business field MUST have SEPARATE records.

•Business records should be stored by tax year.