7 Reasons Why You Should Keep Records

You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success. 

You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business. 

• An income statement shows the income and expenses of the business for a given period of time.
• A balance sheet shows the assets, liabilities, and your equity in the business on a given date. 

You will receive money or property from many sources. Your records can identify the sources of your income. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. 

Unless you record them when they occur, you may forget expenses when you prepare your tax return.

Your basis is the amount of your investment in property for tax purposes. You will use the basis to figure the gain or loss on the sale, exchange, or other disposition of property, as well as deductions for depreciation, amortization, depletion, and casualty losses.

You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statement. 

You must keep your business records available at all times for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.