Supporting Business Documents
Purchases, sales, payroll, and other transactions in a business will generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information an owner needs to record in their books. It is important to keep these documents because they support the entries in the books and on the tax return. An owner should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.
Gross receipts are the income you receive from your business. A business owner should keep supporting documents that show the amounts and sources of gross receipts. Documents for gross receipts include the following:
- Cash register tapes
- Deposit information (cash and credit sales)
- Receipt books
- Invoices
- Forms 1099-MISC
Purchases are the items a business buys and resell to customers. If the owner is a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. The supporting documents should show the amount paid and that the amount was for purchases. Documents for purchases include the following:
- Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred
- Cash register tape receipts
- Credit card receipts and statements
- Invoices
Expenses are the costs incurred (other than purchases) to carry on a business. The supporting documents should show the amount paid and a description that shows the amount was for a business expense. Documents for expenses include the following:
- Canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred
- Cash register tapes
- Account statements
- Credit card receipts and statements
- Invoices
- Petty cash slips for small cash payments
Assets are the property, such as machinery and furniture, owned and used in the business. The business must keep records to verify certain information about the business assets. The business needs records to compute the annual depreciation and the gain or loss when the assets are sold. Documents for assets should show the following information:
- When and how you acquired the assets
- Purchase price
- Cost of any improvements
- Section 179 deduction taken;
- Deductions taken for depreciation
- Deductions taken for casualty losses, such as losses resulting from fires or storms
- How you used the asset
- When and how you disposed of the asset
- Selling price
- Expenses of sale
Documents such as purchase and sales invoices, real estate closing statements and canceled checks or other documents that identify payee, amount, and proof of payment/electronic funds transferred may show this information.
Travel, Transportation, Entertainment, and Gift Expenses. If a business deducts travel, entertainment, gift or transportation expenses, the business must be able to substantiate certain elements of expenses.
Employment taxes. There are specific employment tax records you must keep. Keep all records of employment for at least four years.