Question

Why is maintaining records an integral part of satisfying income tax obligations? 180–200 words.

Answer 1

Yes, maintaining records is an integral part of satisfying income tax obligations. The record like receipts, payments, revenues and expenses always helps to monitor the business progress, keep track of all work transactions, establish and maintain the relationship between the owner and outside parties. We keep records of cash movements and all accruals involving in a year. The records organizes the receipts and other financial transactions like expenses and potential deductibles which are useful while filling out your tax return.

In contest with the Tax return, all the transactions records and their documentation throughout the year must match and should reflect the same information that had gone with the return. It is always important to have records and related documents because without all these it will be a challenge to assemble and reach out to the exact figures for the business’s income, profits, losses, expenses, and deductions, which are necessary to have accurate and complete Tax return.

The availability of the documents well matched with the records of the transactions during the year will make the audit of the accounts a easy task, otherwise it will not be certified by the Auditor.

The Internal Revenue Service demands the investigation of any transaction. Such task could be fulfilled only if proper records are maintained.

If the business have a transparent, comprehensive, and clear business records like balance sheets, income statements, receipts, and deductions, then the IRS will close the examination of any aspect of the tax return, if the records are being accompanied by documentation.