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Just How Important Is a Paper Trail?
All of the income and expenses that your track for your
recordkeeping need to be supported with some sort of physical proof
such as a receipts, canceled check, bank statement, invoice or credit
card transaction slip.
In the event of an audit, the IRS will require you to document your
sources of income and be able to prove the expenses you used to
reduce your taxes were valid and reasonable for your type of
business.
A clear paper trail is what the IRS will be looking for.
If there is any doubt, the IRS has the power to throw out
unjustifiable expenses and you will be liable for back taxes,
interest and penalties associated with that transaction.
Just how long are you required to keep this documentation?
Although it is recommended that you keep your tax returns and year
end financial reports indefinitely, the general rule is ten years for
most supporting documentation.
This carefully documented paper trail is certainly helpful in the
event of an audit, but it also can help you in the operation of your
business.
Your records provide a clear picture of what is happening in your
business. It reveals how you are earning money and who the source is.
Your records also provide you with an itemized breakdown of how you
are spending money and the reason for the expenditure. This insight
can prove to be a wonderful management tool and can help you meet
your estimated tax liability.
Brigitte A. Thompson, President (WAHM of Sarah 1/93 and Jacob
4/97) DATAMASTER, LLC~
Click here
to send your tax questions to Brigitte, and she will try to answer
them on this
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About the Author:
All articles ©Copyright 1999 Brigitte A. Thompson
Brigitte is the President of DATAMASTER, LLC and has been providing
accounting, bookkeeping, income tax and payroll services since 1992.
She has also operated a home daycare for years and has written a
book
for providers :
The Home Daycare Complete Record-keeping System
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