Accurate business records

Make sure you keep complete and accurate business records. They can reduce the risk of paying extra tax and penalties if you are subject to an enquiry. The Tax Inspector’s favourite question is, ‘Where did this money come from?’ By making a note of the source of any payments into your business or private bank accounts, you will later be able to prove where the money originated and prevent HMRC taxing these receipts as if they were undeclared business profits.

Tax records such as receipts, cancelled checks, and other documents that prove to the IRS an item of income or a tax deduction appearing on your tax return should be kept until the statute of limitations expires for that tax return. Usually this is three years from the date the tax return was due or tax return was filed with the IRS, or two years from the date the tax was paid to the IRS, whichever is later. This is the time period in which the IRS can question your tax return - typically three years after it is filed. You should keep some tax records indefinitely, such as tax records relating to property, since you may need those tax records to prove to the IRS the amount of gain or loss if the property is sold.