Once your business reaches a certain size, recordkeeping is no longer just about tax compliance. It becomes critical for managing risk, securing financing, supporting strategic decisions, and staying audit ready. If your business employs staff, manages inventory, processes customer payments, or owns physical assets, then detailed, accessible records aren’t optional, they’re operational infrastructure.

The best way to keep all your records up to date is by using good accounting software.

Records you need to keep

You need to hold on to anything that’s related to your income and expenses. These are the records your accountant is going to ask for as proof of your business operations, because that’s what the IRS and uses to decide how much to tax you.

When it comes to tax season, you’ll work through the documentation with your accountant, but to make the process run efficiently, you need to have the following on hand:

• Income receipts to document income your business receives. Things like bank deposits, mobile and online payment records, cash register tapes, receipt books and invoices are all examples of proof of income.
• Other costs not related directly to purchases. They include things like rent, power, internet and telephone. You need to keep all documents including petty cash slips for small cash payments.
• Purchases showing what you’ve bought and then resold to customers. You need to keep online records, check butts, credit card receipts, invoices or other documents that show who you paid, and how much.
• Other expenses such as travel for your business, entertaining clients, purchasing gifts or donations to charity.
• Assets you bought and use for your business, like computer equipment, machinery, vehicles, furniture etc. For depreciation purposes, you need to be able to show when and how you purchased the assets, the purchase price, the cost of any improvements you’ve made, what the asset is used for and how much you got for it if you’ve sold.
• If you hire, you need to keep all records relating to employment.

But tax rules aren’t your only concern. Also consider any loan records, payroll, sales tax and any insurance claim documentation after an incident or property damage.

 

How long you should keep your business records

The length of time you need to retain business records varies depending on the type of documentation and its purpose. For most tax-related records, the IRS recommends keeping them for a minimum of three to seven years, depending on the circumstances. For example:

• Three years is typically sufficient for most tax returns if there are no errors or omissions.
• Seven years is required if you claim a deduction for a bad debt or report a loss from worthless securities.
• Indefinitely, in cases of fraud or failure to file a return.

However, tax considerations aren’t the only reason to hold onto records. You may need them to support insurance claims, secure business financing, or comply with other legal or contractual obligations.

It’s wise to work closely with your accountant to determine which records are safe to discard and when. In the meantime, investing in a reliable record-keeping system, whether digital or physical, can help you stay organized and make sure you have access to essential documents when needed.

 

Why you need accounting software

A good software solution will save you a huge amount of time, stress and money. It used to be that small business owners toiled over their payroll, invoicing, tax returns and other accounting tasks during long nights and weekends.

If you have accounting software that does it all for you, you’re eliminating the need to sweat over records for hours on end, and your accountant will definitely thank you for it. Among the many benefits are:

• Easier to process your tax return. Software your accountant uses makes tax filing and payment easier by using the right software to file and pay what your business owes online. You’ll be able to reconcile your bank statements to accounting data, meaning less chance of errors.
• Faster invoicing and checking un-invoiced or late payers.
• Complying with any regulations and standards.

If you’d rather work more efficiently, get paid faster, and comply with a host of regulations, including staying on the right side of the IRS, you’ll want to look into automating these tasks with accounting software. There are lots of review websites that rank accounting software products.

Next steps

• Choose a reliable software solution to streamline your recordkeeping, tax preparation, invoicing, and compliance tasks.
• Set up clear categories for income, expenses, assets, and employment records. Keep digital and physical records easily accessible for your accountant and the IRS.
• Familiarize yourself with IRS guidelines for how long to keep various records, and err on the side of caution by retaining documents that may serve purposes beyond taxes, like insurance or legal needs.
• Regularly review your records with your accountant to ensure compliance, identify gaps, and determine when it's safe to discard old records.

Quite apart from keeping the IRS happy, there are other good reasons to be diligent in your recordkeeping, such as making sure you record all your deductible expenses and good recordkeeping helps you monitor the progress of your business to make sure you’re staying on track.