Accurate financial records are vital to the success of a business. Besides providing a business owner with a complete picture of financial health, they also provide stakeholders, suppliers, and creditors with a true and fair status of the company, enabling them to judge the business’ long-term viability.
Accurate records are also important for tax purposes. They highlight and differentiate sources of income, such as real estate and dividends, on top of normal operations. Proper records also separate business from non-business income and taxable from non-taxable income. They highlight a business’ income, expenses, and credits, which are vital when filing tax returns. Without them, businesses could end up overpaying taxes or forgetting income. Similarly, tax deductions could be missed.
If an IRS audit takes place, excellent financial records support the information filed on tax returns. In fact, a complete history of financial records can speed up the tax inspection.