Tax Court Case Provides Lessons on Best Recordkeeping Practices for Businesses
Running a successful business requires more than delivering great products or services. Behind the scenes, meticulous recordkeeping plays a crucial role in financial health, compliance and tax savings. Good records can mean the difference between successfully defending a deduction and losing valuable tax breaks. A recent U.S. Tax Court decision underscores just how important this is.
Why it matters
The IRS requires all businesses — no matter how small — to maintain records that accurately reflect income, expenses, assets and liabilities. Without these records, it’s nearly impossible to:
- Substantiate tax deductions and credits,
- Track cash flow and profitability,
- Prepare accurate financial statements,
- Monitor the progress of your business,
- Support decisions for financing, and
- Demonstrate compliance during an IRS audit.
In short, strong recordkeeping protects your business, both for operational and tax law purposes.
Taxpayer loses deductions due to insufficient records
In one case, a union power‐line worker also had business interests in a storm response partnership, a salon and a rental property. He claimed significant losses and business expenses on his return for the year in question. Among his claimed deductions were partnership losses and expenses for tools, clothing and travel.
In Tax Court Memo […]
