CHAPTER 3Recordkeeping for Business Income and Deductions
Recordkeeping is a tiresome and time-consuming task. Still, you have little choice but to do it. Records show whether your business is producing a profit or a loss, enabling you to change your business strategies to optimize results. The information in your records enables you to prepare financial statements, such as profit and loss statements and balance sheets, which may be required by your lenders or investors. From a tax perspective, you are required to maintain books and records for a business. You need records to report all you income correctly, including determining your gain or loss when you sell property. And as a general rule, you must be able to back up your deductions with certain clear proof, such as receipts, canceled checks, and other documentation. If you do not have this proof, your deductions may be disallowed or force you to litigate in order to win your position (a costly and time-consuming activity). Certain deductions require specific evidence. Other deductions are based on more general means of proof.
For further information on recordkeeping, see IRS Publication 334, Tax Guide for Small Business (for Individuals Who File Schedule C); IRS Publication 552, Recordkeeping for Individuals; and IRS Publication 583, ...
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