Supporting Business Documents

From the IRS's point of view, perhaps even more important than your overall business accounting system is your ability to produce the invoices, receipts, and other original documents that substantiate your items of income and expense.

To show your income, you should have original documents such as cash register tapes, bank deposit slips, receipts, invoices, credit card charge slips, and, if you're an independent contractor, Forms 1099-MISC.

If you carry inventory, you should have canceled checks, cash register tape receipts, credit card sales slips, and invoices.

To show your other business expenses, you should have canceled checks, cash register tapes, account statements, invoices, and credit card slips. Very small expenses paid in cash can be evidenced by a sales receipt.

Ideally, you should have two forms of records for each expense: a document showing you paid the expense, such as a canceled check or credit card slip, and a document itemizing the expense, such as a sales receipt or invoice from the vendor.

Tip If your financial institution does not provide you with canceled checks, you can rely on an account statement that shows, for each check, the check number, amount, payee, and date the check amount was posted. Similarly, statements showing electronic funds transfers or credit card statements can also be used. However, these statements should not be your only record of your expenses. You should also have another form of proof for each expense, such as a receipt or an invoice.