Record Keeping Basics
Tools for record keeping
Audit proof your business - Internal records
Summary of required documents
Every asset bought by the business should be carefully documented. Receipts should be kept for at least 3 years after the final depreciation amount was taken on the tax return. Assets are the items you buy in your business, you cannot use up in a year. For example, buildings, vehicles, equipment, furniture, computer,etc.
Assets are usually depreciated or expensed for as long as you expect to use them. However, you can elect to deduct the full cost on your tax return. I will recommend you consult with your CPA to see if this strategy is good for you. If you are expecting to make more money in the future, then taking the expense over multiple years usually works out better.
Keep a fixed asset log to track fixed assets. Your fixed assets should have the following columns:
- Description of asset
- Date the asset was purchased
- Cost of the asset
- Business use percentage
- How long you intend to use the asset
- Date sold
- Current year depreciation – get this amount from your accountant and update your record each year.
- Book value. This is what you bought the asset for less any depreciation