Before you read
This article is educational. It is not tax, legal or accounting advice. It’s written for resellers in the United States and summarizes, in general terms, what the Internal Revenue Service publishes about business records. Rules change, and your situation may differ from the general case: how your business is set up, the state you’re in, whether you have employees, and more. For decisions about your own taxes, talk to a qualified tax professional, and treat the IRS’s own pages, linked throughout, as the authority over anything written here.
Why the IRS expects records at all
The IRS’s guidance is direct. Publication 583, its guide to starting a business and keeping records, says that everyone in business must keep records. Both Publication 583 and the IRS Recordkeeping page describe records as serving several purposes, not just one. Good records help you monitor how the business is doing, prepare financial statements, identify where your receipts came from, keep track of deductible expenses, prepare your tax returns and support what you report on them.
The Recordkeeping page also makes a point that matters for resellers: you are responsible for substantiating the entries, deductions and statements on your return. When there’s a question, the burden of showing what happened generally falls on you. A shoebox of faded receipts and a memory of “about forty dollars” is a weak position. An organized record made at the time is a strong one.
You can choose your own system
A reassuring point from the IRS is that, except in a few cases, the law doesn’t require a particular kind of record. According to the IRS page What kind of records should I keep, you can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Your books should summarize your transactions and show your gross income, deductions and credits.
Publication 583 describes two common bookkeeping approaches. A single-entry system, which it calls the simplest, is built around the income statement. A double-entry system uses journals and ledgers, with each transaction recorded as a debit in one account and a credit in another. Many small resellers start with something closer to the first. What matters most, by the IRS’s own description, is that the system clearly shows income and expenses and is backed by documents.
For most small businesses, the IRS notes, the business checking account is the main source of entries in the books. That’s one practical reason many resellers keep a separate account or card for the business. It makes the account itself a cleaner record.
Supporting documents: the paper behind the numbers
The IRS draws a distinction between your books, the summary, and the supporting documents behind them. Sales slips, paid bills, invoices, receipts, deposit slips and canceled checks are the kinds of documents it lists. It suggests keeping them organized, for example by year and by type of income or expense, and somewhere secure.
Here’s how the IRS groups them, and what each group looks like in reselling.
Gross receipts: what came in
Gross receipts are the income you receive from the business. The IRS lists documents like cash register tapes, bank deposit records, receipt books, invoices and Forms 1099-MISC. Publication 583 adds credit card charge slips and Form 1099-NEC.
For a reseller, this is the trail of your sales. It includes marketplace payout reports and order records, an antique mall’s vendor statements, payment-app records from markets and shows, and your own notes of cash sales.
Purchases: goods you buy to resell
This is the group that matters most for most resellers: the goods you buy to sell again. On What kind of records should I keep, the IRS says your supporting documents for purchases should identify:
- the payee,
- the amount paid,
- proof of payment,
- the date, and
- a description of the item that shows the amount was for purchases.
The examples it gives include canceled checks or electronic fund transfer records, cash register receipts, credit card statements and invoices. It also notes that you may need more than one document to support a single purchase.
Think about what that means for a typical sourcing day. A thrift store register receipt shows the store, the date and the amount, but not always what you bought. A card statement proves payment, but says nothing about the goods. Together, plus a note of “two bags of denim” made at the time, they cover what the IRS describes. Cash purchases at yard sales and flea markets, where there may be no receipt at all, are exactly where a contemporaneous note earns its keep.
Expenses: everything else the business pays for
The IRS describes expenses as the costs, other than purchases, of carrying on your business. For resellers, that means shipping supplies, booth rent, storage, fees, tools and the like. The IRS applies the same standard as for purchases: the documents should identify the payee, amount, proof of payment and date, with a description that shows the amount was a business expense. Account statements, canceled checks, credit card records and invoices are the examples it lists.
Travel, transportation and gifts
Sourcing involves a lot of driving. The IRS notes that travel, transportation and gift expenses carry their own specific recordkeeping rules, and it points to Publication 463 for the details. If your sourcing trips or deliveries involve vehicle use, that publication, and your tax preparer, are the places to start. For the trip itself, see how to record a sourcing trip as it happens. The general recordkeeping pages don’t cover it in detail.
Assets
Things the business keeps and uses, rather than resells, are assets. Examples include display cases, a steamer, shelving or a vehicle. The IRS says your records for assets should show things like when and how you acquired the asset, the purchase price, improvements, deductions taken for depreciation or Section 179, how you used it, and when and how you disposed of it, including the selling price and expenses.
Electronic records count, with conditions
Photographing receipts and keeping records in software are common now. Publication 583 says electronic records are subject to the same requirements as paper ones. An electronic storage system must be able to index, store, preserve, retrieve and reproduce records in a legible format. It also cautions that paper originals should only be destroyed once the electronic system has been tested and procedures are in place. If you plan to rely on photos alone, read that section of Publication 583 and ask your preparer first.
How long to keep them
The IRS page How long should I keep records? explains that the answer depends on what the record documents. The general rule is to keep records that support income, deductions or credits on a return until the period of limitations for that return runs out. That’s the window in which the return can be amended or more tax assessed. The page lists a general period of three years, and longer periods in particular situations. Records for property you own are kept until the limitations period expires for the year you dispose of it. The IRS also suggests checking whether insurers, lenders or others need you to keep records longer. Read the page itself for the full list, since the specifics matter.
A practical summary for resellers
Pulling the IRS’s general guidance into reselling terms:
- Record every purchase with who you paid, how much, how you paid, the date and what it was.
- Record every business expense to the same standard.
- Keep the trail of every sale: statements, payouts and notes of cash sales.
- Keep the supporting paper, organized by year and type, or a reliable electronic copy.
- Keep it long enough, as described on the IRS’s records-retention page.
- Ask a professional about anything specific to you, especially mileage, assets and sales tax.
Where Sellers Almanac fits
Sellers Almanac keeps business records: Purchases, Expenses and Sales with dates, amounts and notes, which you and your tax preparer can use. It isn’t tax or accounting software, and it doesn’t give tax advice. It’s in founder testing on iPhone and not yet available to download. Receipt suggestions are in development; mileage, tax-year review and export are planned. See how recording works today.