Here are some of the records you must keep to support the revenues and expenses for your small business:

You should choose a record keeping system that suits your business that clearly shows your income and expenses.  The law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. Your record keeping system should also include a summary of your business transactions. This summary is ordinarily made in your business books (for example, accounting journals and ledgers). Your books must show your gross income, as well as your deductions and credits. For most small businesses, the business checkbook is the main source of recording income and expenses.  The important thing with regard to expenses you deduct on your tax return is to have the receipts and other data to support the deduction.

Keep your receipts. You may need the support for your dedcutions.

Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents such as invoices and receipts. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.

The following are the minimum records you should keep:

Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following:

Cash register tapes

Bank deposit slips

Receipt books

Invoices

Credit card charge slips

Forms 1099-MISC

Purchases are the items you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for purchases. Documents for purchases include the following:

Canceled checks

Cash register tape receipts

Credit card sales slips

Invoices

Expenses are the costs you incur to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Documents for expenses include the following:

Cancelled checks are the best support of payments.

Canceled checks

Cash register tapes

Account statements

Credit card sales slips

Invoices

Petty cash slips for small cash payments

Travel, meals, transportation, entertainment, and gift expenses are sometimes used to promote your business.  If you deduct travel, entertainment, gift, meals or transportation expenses, you must be able to substantiate certain elements of the expenses.  It is essential that you contemporaneously record the business purpose of deductions for meals and entertainment.  The receipt should include the date, the amount, and the place where the business meeting occurred.

Your business meeting equipment is deductible.

Fixed assets 

are normally acquired in the course of business.  NOTE:  Documentation of your fixed assets generally must be kept much longer than other tax records.  Assets are the property, such as machinery and furniture that you own and use in your business.  You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets.  Required documents for supporting fixed asset transactions include the following:

When and how you acquired the assets

Purchase price

Cost of any improvements

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 and closing and/or disposition documents

Expenses of sale

Purchase and sales invoices

Real estate closing statements

Canceled checks for purchasing fixed assets

Keep all records of payroll expenses, payroll taxes and employment records for at least four years.  The IRS is specifically reviewing small businesses that use independent contractors.  Make sure your classification of independent contractors meets IRS guidelines.