Publication 225 |
2000 Tax Year |
Kinds of Records To Keep
Except in a few cases, the law does not require any special kind of
records. You may choose any recordkeeping system suited to your
farming business that clearly shows your income and expenses.
You should set up your recordkeeping system using an accounting
method that clearly shows your income for your tax year. See chapter 3.
If you are in more than one business, you should keep a complete
and separate set of records for each business. A corporation should
keep minutes of board of directors' meetings.
Your recordkeeping system should include a summary of your business
transactions. This summary is ordinarily made in accounting journals
and ledgers. They must show your gross income, as well as your
deductions and credits. In addition, you must keep supporting
documents. Purchases, sales, payroll, and other transactions you have
in your business generate supporting documents such as invoices and
receipts. These documents contain the information you need to record
in your journals and ledgers.
It is important to keep these documents because they support the
entries in your journals and ledgers and on your tax return. Keep them
in an orderly fashion and in a safe place. For instance, organize them
by year and type of income or expense.
Travel, transportation, entertainment, and gift expenses.
Special recordkeeping rules apply to these expenses. For more
information, see Publication 463.
Employment taxes.
There are specific employment tax records you must keep. For a
list, see Publication 51
(Circular A).
Excise taxes.
See How To Claim a Credit or Refund in chapter 18
for
the specific records you must keep to verify your claim for credit or
refund of excise taxes on certain fuels.
Assets.
Assets are the property, such as machinery and equipment, you own
and use in your business. You must keep records to verify certain
information about your business assets. You need records to figure
your annual depreciation deduction and the gain or loss when you sell
the assets. Your records should show all the following.
- When and how you acquired the asset.
- Purchase price.
- Cost of any improvements.
- Section 179 deduction taken.
- Deductions taken for depreciation.
- Deductions taken for casualty losses, such as losses
resulting from fires or storms.
- How you used the asset.
- When and how you disposed of the asset.
- Selling price.
- Expenses of sale.
The following are examples of records that may show this
information.
- Purchase and sales invoices.
- Real estate closing statements.
- Canceled checks.
Financial account statements as proof of payment.
If you do not have a canceled check, you may be able to prove
payment with certain financial account statements prepared by
financial institutions. These include account statements prepared for
the financial institution by a third party. These account statements
must be highly legible. The following table lists acceptable account
statements.
IF payment is by... |
THEN the statement must show the... |
Check |
- Check number
- Amount
- Payee's name
- Date the check amount was posted to the account by the
financial institution
|
Electronic funds transfer |
- Amount transferred
- Payee's name
- Date the transfer was posted to the account by the financial
institution
|
Credit card |
- Amount charged
- Payee's name
- Transaction date
|
Proof of payment of an amount alone does not establish you are
entitled to a tax deduction. You should also keep other documents,
such as credit card sales slips and invoices.
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