If you do find yourself facing a tax auditor and can not produce the records that are needed to substantiate your claim, chances are good that the auditor will just guess at what it should be. In most cases, the auditor legally is allowed to guess and what your income and expenses are if you can not provide accurate records. This is a costly problem and one that you can avoid by keeping records accurately.

Records should include all transactions that take place for your business. If your business makes a sale, pays someone or pays employees, keep a record of it. Keep a receipt or other record of anything that you file as a business deduction, too. Missing any of these will allow you to fall victim to the guess. That will be costly in most cases. All you need to do, though, is to keep an ongoing record for the year to avoid this problem.