Following the Rules of Recordkeeping
After you find a CPA or other financial professional, that person no doubt instructs you on the rules of good recordkeeping. In the meantime, take our crash course to help you get started doing things right!
Dealing with all the paper
When we refer to records in the remainder of this chapter, we don't mean your account logs. Instead, we're talking about the physical records (the dreaded paper trail) that the IRS expects you to maintain. The thought of accidentally throwing out the wrong receipt or losing a copy of a questionable invoice can send chills up the spine of any well-meaning entrepreneur if the IRS comes calling. At the same time, your office space probably doesn't come with unlimited storage space.
How do you balance the need to hang on to important receipts with the need not to be overrun by the growing mounds of paper? The good news is that the IRS now recognizes electronic versions of financial records. You can therefore scan copies of receipts, invoices, logbooks, and other proof of financial transactions and save them as files on your computer or, better, back up these files to a CD-ROM or DVD. Then you get to throw out the hard copies! That's the easiest way to avoid the clutter that builds up with months and years of business transactions.
If you lose the electronic file and are audited, the IRS isn't sympathetic. The loss ...