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taxmap/pubs/p225-001.htm#TXMP426176a5 Chapter 1 Importance of Records(p3)

Importance of Records

taxmap/pubs/p225-001.htm#TXMP1a18aae4
Introduction

A farmer, like other taxpayers, must keep records to prepare an accurate income tax return and determine the correct amount of tax. This chapter explains the benefits of keeping records, what kinds of records you must keep, and how long you must keep them for federal tax purposes.

Tax records are not the only type of records you need to keep for your farming business. You should also keep records that measure your farm's financial performance. This publication only discusses tax records.

The Farm Financial Standards Council has produced a publication that provides a detailed explanation of the recommendations of the Council for financial reporting and analysis. For information on recordkeeping, you may download Financial Guidelines for Agricultural Producer publication at www.ffsc.org. You can contact Countryside Marketing, Inc. in the following manner.

• Call 262-253-6902.
• Send a fax to 262-253-6903.
• Write to: 
  Farm Financial Standards Council 
  N78 W14573 Appleton Ave #287 
  Menomonee Falls, WI 53051.

Useful items

You may want to see:

See chapter 17 for information about getting publications.

taxmap/pubs/p225-001.htm#TXMP00756c42 Benefits of Recordkeeping(p3)

Benefits of Recordkeeping

Everyone in business, including farmers, must keep appropriate records. Recordkeeping will help you do the following.

taxmap/pubs/p225-001.htm#TXMP028c23d3 Monitor the progress of your farming business.(p3)

You need records to monitor the progress of your farming business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Records can increase the likelihood of business success.

taxmap/pubs/p225-001.htm#TXMP5601df54 Prepare your financial statements.(p3)

You need records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you to manage your farm business.

taxmap/pubs/p225-001.htm#TXMP09111f04 Identify source of receipts.(p3)

You will receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate farm from nonfarm receipts and taxable from nontaxable income.

taxmap/pubs/p225-001.htm#TXMP52ad0b67 Keep track of deductible expenses.(p3)

You may forget expenses when you prepare your tax return unless you record them when they occur.

taxmap/pubs/p225-001.htm#TXMP3ad1f029 Prepare your tax returns.(p3)

You need records to prepare your tax return. For example, your records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your farming business and prepare your financial statements.

taxmap/pubs/p225-001.htm#TXMP5cdd0bf6 Support items reported on tax returns.(p3)

You must keep your business records available at all times for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.

Previous Page:  Publication 225 - Farmer's Tax Guide - Farmer's Tax Guide Next Page:  Publication 225 - Farmer's Tax Guide - Kinds of Records To Keep Use   to find additional occurrences of topic items.