4 Types of Documents to Keep for Tax Purposes When Starting a Business
When starting a business, there are many papers to keep for tax purposes. Some are needed for actually filing taxes, and others should be kept in case the IRS asks you questions later or audits your business. Here’s a look at some of the tax-related documents and papers you’ll want to keep when starting a business.
1. Your Business’s Gross Receipts
Gross receipts detail how much revenue your business has brought in. Unlike a profit and loss statement, which also should list your business’s gross revenue, gross receipts actually show the exact transactions that took place. In contrast, a profit and loss statement simply lists the gross revenue (and other figures) for the period reported.
You’ll want to keep all of your business’s gross receipts in case you need to prove how much revenue your business brought in. You may also have to consult your receipts if there’s a discrepancy in your profit and loss reports. Depending on how your business conducts sales and collects payments, its gross receipts might include any of the following:
- Receipts from cash register sales
- Bank deposit slips
- Form 1099-MISCs (an official IRS form)
- Other documents from sales
You don’t necessarily need to keep hard copies of these papers. Electronic documents and scanned documents are often fine, as long as you have some form of documentation that shows exactly what your business earned and how.
2. Receipts for Business Expenses
Business expenses — as long as they’re actually used for your business and not personal reasons — can usually be deducted from your business’s revenue. Deducting these expenses reduces your business’s reported profits and, in turn, the taxes it owes.
In order to accurately calculate these expenses when filing your business’s taxes, you’ll need to keep the receipts from them. These receipts can also serve as evidence of your business expenses if the IRS ever has a question about what you deducted as business expenses. Receipts are proof of what was purchased, when it was purchased, and how much you paid.
3. Mileage Records
Most business owners drive a lot for their business, and mileage driven for business is deductible. The particular deduction can quickly add up, as the per-mile rate is significant. In 2018, the rate was 54.5 cents per mile. For some businesses, simply driving to the post office to mail items could add up to 100 miles or more in a year, netting a deduction of at least $54.50.
To claim this deduction, however, you need to be able to show how many miles you’ve driven for business.
If your business has a dedicated vehicle, showing mileage is easy. Check the vehicle’s odometer on January 1 and December 31, and subtract the former number from the latter. The difference should be how many miles you drove for business that year.
If you use your car for both business and personal reasons, as many new business owners do, the documentation is a little more involved. You’ll need to keep track of everywhere you drive and whether each trip driven is for business or personal reasons. Recording this might be cumbersome, but keeping a document that has this information could get you a big deduction.
4. Bank Account and Credit Card Statements
Statements for your business’s bank accounts and credit cards should be kept because they have a lot of information about your business’s finances. They may help when calculating expenses or sales, and they might serve as evidence if you’re ever audited. Additionally, you may be able to deduct bank account or credit card fees if they’re listed on these statements.
For help with business planning and preparing your business’s taxes, contact Monheit Frisch CPAs PLC.