Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your farming business that clearly shows, for example, 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 2. 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. For example, 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. taxmap/pubs/p225-002.htm#en_us_publink1000131405
Specific recordkeeping rules apply to these expenses. For more information, see Publication 463.taxmap/pubs/p225-002.htm#en_us_publink1000131406
There are specific employment tax records you must keep. For a list, see Publication 51 (Circular A).taxmap/pubs/p225-002.htm#en_us_publink1000131407
See How To Claim a Credit or Refund in chapter 14 for the specific records you must keep to verify your claim for credit or refund of excise taxes on certain fuels.taxmap/pubs/p225-002.htm#en_us_publink1000131408
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.
- Bank statements.
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 legible. The following table lists acceptable account statements.
|IF payment is by...||THEN the statement must show the...|
- Check number.
- Payee's name.
- Date the check amount was posted to the account by the financial institution.
|Electronic funds |
- 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, by itself, does not establish you are entitled to a tax deduction. You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost.
Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return. Keep copies of your information returns such as Form 1099, Schedule K-1 and Form W-2.