There are two reasons to keep records of your business:
They are useful to you as a manager.
They are required by law
They must clearly show income, deductions, credits, employee information and anything else required by federal, state, and local regulations. Records must be kept to work out the tax liabilities of your business. The records must be kept for a minimum of 3 years for tax purposes.
From a managerial standpoint, maintaining accurate records is vital to the day to day operation of your business. Infomation about the financial condition of your business helps you identify and correct any income or expenditure problems before they get out of hand.
When delevoping a record keeping system, your goal is to keep it as simple as possible to save time. There are two basic types of records that you are required to maintain:
1. Sales Records
Sales records include all income derived from the sale of products or the performance of services. They may be grouped into one large category called gross sales, or divided into serveral sub-categories of different types and services or products. This record will help you know what's doing well and what isn't.
2. Purchase and Expense Records
Purchase and expense records are sometimes referred to as disbursements or accounts payable. If possible all disbursements should be made by check or credit card so that business expenses are well documented for taxation purposes. If a cash payment is necessary, a receipt for the payment, or at least an explanation of it, should be included in the business records. For IRS purposes, you will need a "tax invoice". All documents which substantiate entries in the business records should be filed in an orderly manner and stored in a safe place.
3. Other Records
All relevant documents for the purpose of proving taxable income and expenditure and documents containing particulars of any election, estimate, determination or calculation of your taxation commitment must be kept. Under the self-assessment sytem, these documents do not have to be lodged with the tax returns but need to be available if the Tax Office conducts and audit. Again, all records must be kept for 3 years
Check the IRS website for how long should I keep records?