Small Business Recordkeeping: Tax Records You Need to Keep

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Keeping good records for your small business might not be the most glamorous part of your day, but it’s absolutely vital. Think of it as your business’s financial storybook, and you want that story to be clear, complete, and ready for tax time. We see a lot of small businesses stumble here, so let’s walk through the essential tax records you need to keep and why they’re so important.

Why even bother with good recordkeeping?

You might be thinking, “Do I really need to hold onto every single receipt?”

And the short answer is: yes, mostly! Good recordkeeping isn’t just about making your accountant happy; it’s about protecting your business and making smart financial decisions.

Here’s why it matters:

Acing your taxes: Accurate records make preparing your tax returns much smoother and help ensure you’re claiming all the deductions you’re entitled to. No more frantic searches or missed opportunities!
Surviving an audit: Let’s face it, no one wants an audit. But if the IRS or your local tax authority comes knocking, having pristine records means you can easily back up every number on your tax return. This can save you from penalties and stress.
Making smart decisions: Your records are a goldmine of information about your business’s performance. They help you understand your cash flow, identify trends, and make informed choices about where to invest or cut back.

Meeting legal requirements: Various regulations require businesses to keep certain records for specific periods. Staying on top of this keeps you compliant and out of trouble.

What records should you keep? (the nitty-gritty)

Now, let’s get into the specifics. While every business is unique, there’s a core set of records that almost all small businesses should keep for tax purposes.

1. Income records:

This is all about proving where your business’s money comes from.

Sales receipts & invoices: Keep copies of every invoice you send and every sales receipt you issue. This includes cash sales, credit card transactions, and online payments.
Bank statements & deposit slips: These show all the money flowing into your business accounts.
Payment processor records: If you use platforms like PayPal, Stripe, or Square, make sure you have records of all transactions processed through them.
Form 1099-NEC & 1099-MISC: If you received payments for services as an independent contractor or other miscellaneous income, you’ll get these forms. Keep them safe!

2. Expense records: don't miss a deduction!

This is where you can save real money. Every legitimate business expense can reduce your taxable income.

Receipts, invoices, & bills: For every business expense, keep the original receipt, invoice, or bill. This includes everything from office supplies and software subscriptions to travel costs and professional fees. Make sure the receipt clearly shows the vendor, amount, date, and what was purchased.
Credit card & bank statements: These are great for cross-referencing your receipts, but remember, the actual receipt is usually the primary proof.
Mileage logs: If you use your personal vehicle for business, a detailed mileage log is crucial for claiming vehicle deductions. Note the date, miles driven, destination, and purpose of the trip.
Home office expenses: If you claim a home office, you’ll need records related to rent/mortgage, utilities, insurance, and repairs.

Payroll records: If you have employees, you’ll need to keep all payroll records, including timesheets, wage statements, tax withholdings, and records of benefits

3. Asset records: big purchases matter

For larger purchases that you’ll use for more than a year (like equipment, vehicles, or property), you need special records.

Purchase invoices: Document the cost and date of acquisition.
Improvement records: Keep track of any significant improvements made to assets.
Depreciation schedules: If you’re depreciating assets, your depreciation schedules are important tax records.

4. Payroll records: for when you have a team

If you employ others, your payroll records are extensive and crucial.

Employee information: Names, addresses, Social Security numbers.
Timesheets and work records: Documenting hours worked.
Wage and salary information: Rates of pay, gross pay, net pay.
Withholding certificates (W-4s): From each employee.
Payroll tax records: Federal, state, and local payroll tax filings and payment records (e.g., Forms 941, W-2s, state unemployment tax returns).
Benefits records: If you offer benefits like health insurance or retirement plans.

How long do you need to keep records?

This is a common question, and the general rule of thumb from the IRS is to keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.

However, there are exceptions:

Seven years: For records related to losses from worthless securities or bad debt deductions.
Four years: For employment tax records (from the date the tax becomes due or is paid, whichever is later).
Indefinitely: For records related to property or assets (until a certain period after you dispose of the property). Business formation documents should also be kept indefinitely.

When in doubt, it’s often safer to keep records longer, or consult with a tax professional.

How to keep your records tidy and safe

Gone are the days of overflowing shoeboxes! Digital recordkeeping is your best friend.

Go digital: Scan paper receipts and documents. Store them securely in cloud services like Google Drive, Dropbox, or Evernote, or directly within your accounting software. This makes them searchable and less prone to loss.
Categorize consistently: Use your chart of accounts to categorize income and expenses right away. This prevents confusion later.
Regularity is key: Don’t wait until year-end. Dedicate time weekly or monthly to update your records. This keeps things manageable and accurate.
Back it up: Whether digital or physical, always have a backup!

How Sup can help

We know that small business recordkeeping can feel overwhelming. That’s where Sup comes in. Our platform and team are designed to make keeping your financial records accurate and accessible. We can help you:

Set up an organized system customised to your business needs.
Streamline expense tracking so you never miss a deduction.
Generate clear financial reports that help you understand your business’s health.
Keep everything tidy so you’re always prepared for tax season.

With Sup on your side, you can spend less time worrying about paperwork and more time doing what you love – growing your business. Let’s chat about how we can make your recordkeeping a breeze!

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