Income and Expense Records for the Self-Employed: A Practical Guide

Keeping income and expense records is one of the fundamental obligations of every self-employed person who wants to calculate their taxes correctly and avoid problems during a potential tax office audit. Yet many sole traders are unsure about exactly what to record and how, which documents to keep, and what format to use. The result is often insufficient documentation for the tax return, missing records, or discrepancies that can lead to additional tax assessments and fines.

In this article, we present a comprehensive practical guide to keeping income and expense records correctly, efficiently, and in line with current legislation. We draw on Act No. 586/1992 Coll., on Income Taxes, specifically Section 7b, which governs tax records, and on the guidelines of the Czech Financial Administration.

Why Income and Expense Records Matter So Much

Income and expense records are not just a formality. They serve several key functions that directly affect your business and your relationship with the tax office.

First, they serve as the basis for calculating your income tax base. For self-employed persons using cash-basis tax records, the tax base is calculated as the difference between income and expenses — on a cash basis. If your records are inaccurate, your tax return may be wrong as well.

Second, they are your primary evidence in the event of a tax audit. The tax office has the right to request your records and verify that they reflect reality. Without proper records, you cannot prove that the expenses you claimed were legitimate.

Third, well-kept records give you a clear picture of your business's financial health. You can see how much you are actually earning, what your main cost items are, and where there is room for optimisation.

What the Law Requires: Content of Tax Records

Under Section 7b of the Income Tax Act, tax records must contain information on:

1. Income and expenses broken down as necessary to determine the tax base
2. Assets and liabilities (receivables and payables)

The law deliberately does not specify an exact form or format for the records. This gives you the freedom to choose how you keep them — on paper, in a spreadsheet, or in accounting software. What matters is that the records are reliable, complete, and comprehensible.

Categorising Income

At a minimum, you must distinguish between the following types of income in your records:

Taxable income (affects the tax base):

• Revenue from the sale of goods and services
• Commissions and fees for brokerage services
• Income from the sale of assets included in business assets
• Compensation received for damages related to business activities
• Interest on business accounts

Non-taxable income (does not affect the tax base):

• Personal funds deposited by the business owner
• Loans and borrowings received
• Income subject to withholding tax (e.g. interest on fixed-term deposits)
• Tax-exempt income
• VAT received (for VAT payers)

Categorising Expenses

Expenses are categorised in the same way:

Tax-deductible expenses (reduce the tax base):

• Purchase of materials and goods
• Fuel and vehicle operating costs
• Rent for premises or office space
• Telecommunications and internet services
• Business-related insurance
• Travel and meal allowances on business trips
• Asset depreciation
• Wage costs (if you have employees)

Non-deductible expenses (do not affect the tax base):

• Personal withdrawals by the business owner (personal use)
• Loan repayments (principal)
• Income tax payments
• Advance payments for social and health insurance contributions (OSVČ)
• Acquisition of long-term assets (subject to depreciation, not a one-off expense)
• Entertainment expenses (hospitality, refreshments, gifts exceeding the limit)

The Income and Expense Ledger: The Heart of Your Records

The income and expense ledger (often called a cash journal) is the main tool of cash-basis tax records. In it, you record all monetary transactions related to your business in chronological order.

Required Information for Each Entry

Although the law does not prescribe an exact format, each entry should contain the following information:

Practical Example of an Income and Expense Ledger

The Cash Basis Principle: When to Record Income or Expenses

The fundamental rule of cash-basis tax records is the cash (monetary) principle. Income is recorded at the moment you actually receive the money (when it is credited to your account or received as cash). Expenses are recorded at the moment you actually pay (when the amount is debited from your account or paid in cash).

This is a key difference from double-entry bookkeeping, which uses the accrual principle (recording at the moment a receivable or liability arises, regardless of when payment occurs).

Which Documents You Must Keep

Every entry in your income and expense records must be supported by a document. Documents are your evidence — without them, you cannot prove the legitimacy of either income or expenses. The tax authority will always require you to produce original documents during an audit.

Types of Documents You Need

Income documents:

• Issued invoices (your own invoices issued to clients)
• Cash receipt vouchers (when receiving cash)
• Bank statements confirming receipt of payments
• contracts for work and purchase orders (as supporting documents)

Expense documents:

• Received invoices (invoices from suppliers)
• Till receipts and sales slips (for small purchases)
• Cash payment vouchers (when paying in cash)
• Bank statements confirming outgoing payments
• Travel orders (for business trips)
• Contracts (rental, leasing, insurance)
• Payroll documents (if you have employees)

What to Do When a Document Is Missing

It sometimes happens that you lose a document or never receive one in the first place. In that case, you have several options:

1. Request a duplicate — contact the supplier and ask for a copy of the invoice or payment confirmation.
2. Create an internal document — for certain transactions (e.g. travel or meal allowances on a business trip), you can create your own document based on a travel order.
3. Use your bank statement — a bank statement can serve as a supporting document, but on its own it does not replace an invoice.
4. Card payment record — a card payment statement can, in combination with other evidence, serve as supporting documentation.

Format and Method of Keeping Records

The law does not prescribe any specific format for records. You can choose the approach that suits you best. Each has its advantages and disadvantages.

Paper Records

If you opt for paper records, buy a pre-printed cash journal (available at stationery shops) or create your own template. Write entries in pen (not pencil) and file documents chronologically in binders divided by month.

Electronic Records in a Spreadsheet

For most self-employed people, keeping records in a spreadsheet is the most practical option. Create a template with the following columns: date, document number, description, taxable income, non-taxable income, tax-deductible expense, non-deductible expense. At the end of each month, add up the subtotals, and at the end of the year, calculate the annual total.

Accounting Software

Specialist software is particularly useful for VAT payers or OSVČ with a higher volume of transactions. The software automatically generates reports, cross-checks documents, and simplifies the preparation of the tax return.

Recording Other Components: Assets, Receivables, and Liabilities

In addition to income and expenses, tax records must also include information on assets and liabilities. These are additional ledgers that you must maintain.

Receivables Ledger

A receivable arises the moment you issue an invoice (i.e. when you have a right to payment). In your receivables ledger, record:

• Invoice number
• Date of issue and due date
• The client (name, company registration number)
• Amount
• Date of payment (once paid)

Payables Ledger

A liability arises the moment you receive an invoice from a supplier. Record:

• Received invoice number
• Date of receipt and due date
• The supplier (name, company registration number)
• Amount
• Date of payment

Asset Register

If you own long-term tangible assets (acquisition cost over CZK 80,000) or intangible assets (over CZK 60,000), you must maintain asset cards. Each card should record:

• Name and description of the asset
• Date of acquisition and date of commissioning
• Acquisition cost
• Depreciation category and method
• Annual depreciation and net book value

Practical Real-World Examples

Let us look at specific situations that self-employed people commonly encounter and how to record them correctly.

Example 1: Purchasing a Laptop for CZK 35,000

Example 2: Income from Abroad in Euros

Example 3: Using a Car for Business Purposes

Year-End Closing of Records

At the end of the tax period (the calendar year), you need to carry out an annual closing of your tax records. This process involves several steps.

Common Mistakes in Income and Expense Records

Based on experience from tax audits, the most frequent mistakes made by OSVČ are:

1. Failing to record entries promptly Many sole traders put off entering records until the end of the month or even the end of the year. This leads to errors, lost documents, and inaccuracies. Ideally, record every transaction as soon as it occurs.

2. Missing documents Every entry must be supported by a document. A petrol receipt, a stationery shop till receipt, an invoice for web hosting — without a document, the tax office will disallow the expense.

3. Confusing deductible and non-deductible items Typical errors: including social insurance advance payments among tax-deductible expenses; failing to include interest on a business loan among deductible expenses; recording VAT as income (for VAT payers).

4. Recording at the wrong point in time In cash-basis tax records, the date of payment matters — not the date the invoice was issued. An invoice issued in December and paid in January is income of the following year.

5. Skipping the year-end inventory At year-end, you must carry out a reconciliation of receivables, payables, assets, and stock. Without this, your records are incomplete.

6. Mixing personal and business finances Using a single account for both private and business transactions significantly complicates record-keeping and increases the risk of errors.

Frequently Asked Questions (FAQ)

Do I need to keep records if I claim flat-rate expenses?

If you claim flat-rate expenses (as a percentage of income), you do not need to keep an expense ledger. However, you must still maintain an income record and a receivables record. You must also keep an asset register if you intend to claim assets in the future (e.g. if you switch to recording actual expenses).

How long must I keep my records?

You must archive your tax records, including all supporting documents, for as long as the statutory period for tax assessment continues to run. The basic period is 3 years from the end of the deadline for filing the tax return, but it can be extended (e.g. if an amended return is filed, during a tax audit, or if a tax loss has been reported). In practice, we recommend keeping documents for at least 5–7 years.

Can I keep records in electronic form only?

Yes, the law allows records to be kept entirely electronically. You must ensure, however, that the records remain legible, unaltered, and accessible throughout the entire retention period. We recommend regular backups to multiple locations (local drive + cloud).

What if I receive income in cash?

Cash income is recorded in the same way as non-cash income — the difference is that the supporting document is a cash receipt voucher (not a bank statement). Above a certain threshold (in 2026, the limit for a single payment is CZK 270,000), cash payments cannot be accepted — you must require a bank transfer instead.

Do I need to record minor expenses under CZK 100?

Yes — if you want to claim an expense as tax-deductible, you must record it regardless of the amount. Even a CZK 50 till receipt belongs in your records. In practice, however, some business owners choose not to record very small expenses in order to reduce administrative effort — that is their choice, but they forgo the corresponding tax deduction.

How do I record a barter transaction (exchange of services)?

A barter transaction must be recorded on both sides — as income (the value of what you received) and as an expense (the value of what you provided). Both parties issue invoices at the standard market price and record them in the usual way, even though no monetary payment takes place.

Tips for Efficient Record-Keeping

Useful Links to Official Sources

• Czech Financial Administration — Personal Income Tax — general information on income tax and OSVČ obligations
• Act No. 586/1992 Coll., on Income Taxes — full text of the act, including Section 7b governing cash-basis tax records
• Czech Social Security Administration (ČSSZ) — Income and Expense Statement — information on filing statements for social insurance purposes
• Moje daně Portal — electronic filing of tax returns

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Disclaimer: This article is for informational purposes only and does not substitute professional tax advice. The information reflects legislation in force as of February 2026. For guidance on your specific situation, we recommend consulting a tax adviser or your local tax office.