RECORDKEEPING for self-employed and contractors

The taxpayer should set up his or her record keeping system using an accounting method that clearly shows his or her income for the tax year. All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. When the taxpayer replaces hard copy books and records, he or she must maintain the electronic storage systems for as long as they are material to the administration of tax law. An electronic storage system is any system for preparing or keeping his or her records either by electronic imaging or by transfer to an electronic storage media. The electronic storage system must index, store, preserve, retrieve, and reproduce the electronically stored books and records in legible format. All electronic storage systems must provide a complete and accurate record of the taxpayer’s data that is accessible to the IRS. Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on his or her original hard copy books and records. Purchases, sales, payroll, and other transactions the taxpayer has in his or her business generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain information the taxpayer needs to record in his or her books. Gross receipts are the income the taxpayer receives from his or her business. He or she should keep supporting documents that show the amounts and sources of his or her gross receipts. Documents that show gross receipts include the following:  Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips, Forms 1099-MISC. If you have no tangible record, make the receipt; write down the date, from, to and amount, signed if applicable. Receipt and Inventory is any item the taxpayer buys and resells to customers (like Avon or Mary Kay). If he or she is a manufacturer or producer, this includes the cost of all raw materials or parts purchased to finished products (like paint fabric or wood). The taxpayer’s supporting documents should show the amount paid and that the amount was for inventory. Expenses are the costs the taxpayer incurs (other than the cost of inventory) to carry on his or her business. The taxpayer’s supporting documents should show the amount paid and that the amount was for a business expense. Keep these records for 3 years or longer.  Good business practices will support your tax deductions.