Bookkeeping and tax services for contractors and trades in Long Beach and across Greater LA.

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What records does the IRS require me to keep?

The IRS expects you to keep records that support every number on your tax return. For trade and service businesses, that means documenting your income, expenses, assets, and employment costs with enough detail to prove them if someone asks.

Income records include invoices you’ve sent, bank deposit records, payment processor statements, and any cash payment logs. If you deposit $8,000 in a week, you need documentation showing where that money came from. Unexplained deposits are one of the first things the IRS looks at during an audit.

Expense records mean receipts for every business purchase. The IRS wants to see the amount, date, vendor, and business purpose. A $200 charge at Home Depot needs a receipt showing what you bought and ideally a note about which job it was for. Credit card and bank statements alone are not enough. They show you spent money but not what you bought or why it qualifies as a business expense.

Vehicle records require a mileage log if you’re claiming vehicle deductions. The log needs the date, destination, business purpose, and miles driven for each trip. The IRS is strict about vehicle deductions and denies them regularly when there’s no contemporaneous log. That means you recorded it around the time of the trip, not reconstructed it in February before filing.

Asset and equipment records cover anything you purchase and depreciate. That work truck, trailer, tools, or machinery all need purchase documentation showing the date, cost, and what you bought. Keep these records for as long as you own the asset plus three years after you dispose of it or stop claiming depreciation.

Subcontractor records matter if you pay anyone $600 or more in a year. You need their W-9 on file and records of every payment made. You’ll issue 1099s based on this information, and the IRS cross-checks what you report against what your subs report. If the numbers don’t match, you’ll hear about it. Having proper tax audit support starts with keeping these records organized from the beginning.

Payroll records for employees include W-4s, timesheets, pay stubs, and all tax deposit records. The IRS requires you to keep employment tax records for at least four years after the tax is due or paid, whichever is later.

How long to keep everything depends on the type of record. The general rule is three years from the date you filed the return. But if you underreported income by more than 25%, the IRS has six years to audit you. And there’s no time limit on fraud or failure to file. The practical advice is to keep everything for at least seven years and keep asset records even longer.

Going digital makes all of this manageable. Scan or photograph receipts and store them by year. The IRS accepts electronic records as long as they’re legible and complete. A photo of a receipt on your phone that’s backed up to cloud storage counts.

The businesses that get in trouble aren’t usually doing anything wrong. They just can’t prove they did things right. Missing receipts, no mileage log, and vague expense descriptions turn legitimate deductions into denied deductions. Good contractor bookkeeping services build recordkeeping into the routine so documentation happens as you go rather than becoming a scramble when you actually need it.

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More Questions

Can I get in trouble for not sending 1099s?

Yes. The IRS charges penalties starting at $60 per missing form and going up to $630 for intentional disregard. Beyond fines, you risk losing the deduction for payments where no 1099 was filed.

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What payment terms should I put on my invoices?

For most service-based and trade businesses, Net 15 or Net 30 are standard. The right choice depends on your cash flow needs, the size of the job, and whether you're billing residential or commercial clients.

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Can I deduct continuing education and trade certifications?

Yes, if the education maintains or improves skills in your current trade, it's a deductible business expense. License renewals, code update courses, OSHA certifications, and manufacturer training all qualify. Education that qualifies you for a completely new profession does not.

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What percentage of income should self-employed people save for taxes?

Plan on setting aside 25% to 30% of your net income, though in California the number can run higher. The exact percentage depends on your income level, deductions, and how your business is structured.

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What's the difference between a W-2 employee and a 1099 contractor?

A W-2 employee works under your direction and you handle their payroll taxes. A 1099 contractor runs their own business and handles their own taxes. The distinction matters because misclassifying workers can result in serious penalties, especially in California.

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When are estimated tax payments due?

Federal estimated tax payments are due four times a year: April 15, June 15, September 15, and January 15. California follows the same schedule. Missing a deadline triggers penalties and interest even if you pay in full when you file.

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Long Beach CPA firm specializing in contractors, trades, and service businesses. Bookkeeping, tax preparation, IRS representation, and advisory services for businesses across the South Bay and Greater LA. Owned and operated by a CPA with over a decade of hands-on experience.

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