If I were to get audited, what would I need?
While IANAL (tax or otherwise), I have always found that keeping original receipts is the only way to go. While anything can, at some level, be forged or faked, a photo is one more step removed from the original.  A mere listing on a web site isn't much proof of anything. Keep your originals for a suggested seven years; while the IRS is trying to audit much faster than that, and any inkling of fraud can be investigated at any time, you should be well and clear with originals kept that long.
Does the friend fix your electrical wiring and the engine of your car? If you need a professional advice - ask a professional. In this case - an accountant (not necessarily a CPA, but at least an experienced bookkeeper). Financial Statements (official documents, that is) must be signed by a public accountant (CPA in the US) or the principle (you). I wouldn't take chances and would definitely have an accountant do that. You need to consider the asset useful life, and the depreciation. The fact that you use it for non-business purposes may be recorded in various ways. One that comes to mind is accounting as a supplement for depreciation: You depreciate the percentage that is used for business, and record as a distribution to owner the rest (which is accounting for the personal use). This way it would also match the tax reporting (in the US, at least). Bottom line: if you're preparing an official financial statement (that you're going to submit to anyone other than yourself) - get a professional advice. "I've received letters notifying me of data breaches in the past.  In the end, I've never signed up for the offered protection service, figuring if ""they"" can hack Target or ADP or the IRS, they can hack anybody, like...  Equifax. And now Equifax has been hacked. My family's Social Security Numbers were stolen from a hospital database.  I think that information, plus public information was used to gain further data from the IRS FAFSA tool.  (we got a letter from the IRS).  Ultimately, fraudsters used whatever data they had to file a tax return with the IRS and with the Cali FTB (we don't and never have lived in California).  We got letters from both, and managed to stop the fraud before it really impacted us...other than having to file a paper tax form this past tax season. Anyway...  in a world where Equifax gets hacked:  the only solution is: I don't bother with the crazy password schemes you talk about...  I have a few different passwords I use, but most my investment accounts use the same username and password. It's all about risk.  Bruce Schneier says the same thing.  The amount to spend on security should depend on what you're trying to protect.  I don't care much if somebody gets into my google account, because I have a google account just because I have to.  I barely use it at all.  Similarly my yahoo account.  My yahoo account uses my ""insecure password"", and my investment accounts use my ""secure password"".  Credit Card info?  Meh.  Unless they get into the credit card company database, which undoubtedly has my Social Security Number, it's not that big of a deal.  Yeah, they can make fraudulent charges, but there are legal protections, so in theory I can't be out any money. So think this way:  what's the risk, and what's the appropriate level of effort to take to mitigate that risk." Why would you even accept 75K in cash? If anything is going to trigger an audit, this will be it. 75K in cash deposited will look like money laundring, so you better have a paper trail ready to prove this is legal or this won't end well. It depends on what you paid for, but usually audit support is an unrelated engagement to the return preparation. If the accountant made a professional mistake, you can request correction and compensation from that accountant, other than that any accountant can help you with audit regardless of who prepared the return. The original accountant would probably be better informed about why you reported each number on the return and how it was calculated, but if you kept all the docs, it can be recalculated again. That's what happens in the audit anyway. While it's wise, easier and safer to check your transactions online a few times a month, I opt to receive and file paper statements as a hard copy back up of account history. Any reconciliation I perform is a quick glance to make sure the numbers sound right. It's probably a small waste of time and space, but it settles some of my paranoia (due to my training as a computer engineer)  about failure of electronic banking systems. If someone tampers with bank records or a SAN explodes and wipes out a bunch of account data, then I will have years worth of paper statements to back up my numbers.  Having years worth of statements printed on the banks stationary will have better credibility in court than a .pdf or printout thereof that could have been doctored, in case I ever needed to take my bank to court. A little piece of mind for the price of a letter opener, a square foot file box and a couple of minutes a month. One of the triggers for audit is when the IRS can't match 1099 income to the tax return. Whoever got the 1099 in her name should include that income on her return. Pm me. As a long time bar and restaurant owner who specializes in audits on projects like this I can tell that there are a number of variables at play in this scenario.   A typical MBA won't see the industry issues you need to address.    I can do a phone convo for 15 min and get you sorted fast. Happy to pro bono it.   Good luck. You're asking three different questions...  Q1: What's to stop people not reporting income earned in this manner?  A: Nothing. Absolutely nothing. The IRS doesn't have the means to keep track of your cash flow and your reported taxes on the fly.  Q2: How could the IRS possibly keep track of that? A: When you get audited. If it ever did come up that things didn't balance you would end up owing back taxes, with interest and possibly fines.  Q3: Moral obligations aside... why report? A: Since you've dismissed 'doing your duty as a citizen' as a moral obligation, the only other real one is that it's a pain in the butt to get audited and it is expensive if you lie and get caught. I would listen to chrissundberg below.  Most professionals I meet and interact with in accounting firms, law firms, lending, and others are by the book, smart, professional, and honest in their business dealings.  Of course I have also run into a small minority that try to avoid contractual obligations or pull a fast one on the auditors, but these guys are known quickly throughout the business community and avoided.    You need to reevaluate your thoughts on government's role in business and the finance industry, which you are clearly interested in joining.  Quite frankly you won't last a week coming in most companies if you vocalize the government should do audits and business is amoral. Executive Summary: your elevator speech Overview: What it is in detail Disclosure: what can go wrong, in detail subchapter one: internal threats/weakness subchapter two external subchapter three: risk management Proforma financials: heres how much money I need and here's what the books look like at the end of each of five years. Revenue Forecast: how the majic unfolds in units, price, geographically, and any other dimension Corporate/capital structure: how they can get in an out of this investment and other C-suite operating tidbits Execution plan: you receive the money, then what? I would suggest at least getting a personal card that you only use for business expenses, even if you don't opt for a business card.  It makes it very clear that expenses on that card are business expenses, and is just more professional.  The same goes for a checking account, if you have one of those.  It makes it easier to defend if you are ever audited, and if you use an accountant or tax preparer. I've never understood why the auditing procedure is privatized in the first-place.  The conflicts of interest seem much too inevitable.  Shouldn't the SEC or some other governing body perform the audits?    If an accounting firm's bottom-line is profit and not objective analysis, how can we expect it to not to ignore things here and there if it is good for business? What, if anything, do I need to do? Thanks! Nothing really.  Depending on what information you provided on SS-4, the IRS may come asking for payroll tax returns etc. In that case you'll have to respond describing the situation. If they don't - you won't. I think the best advice you're going to get on the subject is: If you made $250k in half a year, you definitely have enough to hire an accountant!  Get professional help on the subject, and they'll make sure you don't end up getting in any legal trouble. "If you're curious, here are my goals behind this silly madness You said it... The last two words, I mean...:-) If you're auditing your statements - why do you need to keep the info after the audit? You got the statement for last month, you verified that the Starbucks charge that appears there is the same as in your receipts - why keeping them further? Done, no $10 dripping, throw them away. Why do you need to keep your refrigerator owner's manual? What for? You don't know how to operate a refrigerator? You don't know who the manufacturer is to look it up online in case you do need later? Read it once, mark the maintenance details in your calendar (like: TODO: Change the water filter in 3 months), that's it. Done. Throw it away (to the paper recycle bin). You need the receipt as a proof of purchase for warranty? Make a ""warranty"" folder and put all of them there, why in expenses? You don't buy a refrigerator every months. That's it, this way you've eliminated the need to keep monthly expenses folders. Either throw stuff away after the audit or keep it filed where you really need it. You only need a folder for two months at most (last and current), not for 12 months in each of the previous 4 years."