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Starting Your BusinessRecordkeepingExcept in a few cases, the law does not require any special kind of records. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. The business you are in affects the type of records you need to keep for federal tax purposes. You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. See Accounting Method . If you are in more than one business, you should keep a complete and separate set of records for each business. Your recordkeeping system should include a summary of your business transactions. This summary is ordinarily made in your books (for example, accounting journals and ledgers). Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checkbook under “Recording Business Transactions” in Publication 583 is the main source for entries in the business books. In addition, you must keep supporting documents. You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. See the table for Period of Limitations in Publication 583. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date. Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return. Employment taxes. If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. For more information about recordkeeping for employment taxes, see Publication 15.Other Federal Records Every employer subject to the Fair Labor Standards Act (FLSA) must keep certain records for each non-exempt worker. The FLSA requires no particular form for the records, but does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned. The law requires this information to be accurate. Various other worker protection laws also require covered employers to display applicable official posters outlining the provisions of these Acts. The U.S. Department of Labor does not charge for its posters. In addition, The Occupational Safety and Health Administration requires that you keep records of work-related illnesses and injuries. The EEOC also requires employer recordkeeping. For information concerning what records you must keep as an employer, go to EEOC Records. Important References: Publication 15, Circular E Employer's Tax Guide |