Outside of tax law, there’s limited direction as to how long to keep company records. Most attorneys, accountants and accounting services suggest that original tax-related documents be retained for at least seven years. In general, seven years is an adequate time for defending against tax audits, litigation and other claims against one’s company.
Document retention or record keeping in a small business may not be as cumbersome as for a large corporation, but it similarly as important. Additionally, small or family businesses likely don’t have a staff member dedicated to document retention or the business’ retention policies. Large or small it is vital for a business to be familiar with Federal laws regarding record retention.
How Long Should You Keep Documents?
But to set yourself up for success, you’ll also need to think about your business name, finances, an operating agreement, and licenses and permits. How long should you keep business records Sole proprietorship businesses are the most common self-employed business. Here’s what to know about them and what taxes you have to pay.
- Understanding how long should you keep business records will help you avoid these problems.
- In this article, we’ll explain how long you should keep business records for your small business.
- This is really just another benefit to keeping digital records.
- Let’s take a deeper look at the different kinds of tax records and how long you should keep business records to ensure your company is protected in the event of an audit.
In addition to your tax filing documents, your business will also accumulate a lot of data about your employees. Some of these business records will directly impact your tax return, while others are simply a matter of maintaining clear records of your business operations. In addition to your income and payroll records, your business will invariably accrue plenty of miscellaneous business documents. While some of these business records relating to your tax filings, others correspond to your company’s internal record-keeping procedures.
Other key business records to keep
They can quickly notice errors if they are incorrect by comparing both record types. Businesses also need bank statements for tax filing purposes. Once you know what types of records you have, it’s time to figure out how long to keep tax returns, statements and other documents. Below, we’ll go over legal retention requirements and best practices for records not covered by federal or state laws. Aside from the IRS requiring you to maintain business records, there’s a business case to do so as well.
For example, home health agencies need to use Electronic Visit Verification to comply with Medicaid-funded home healthcare visits. Therefore, before creating your record retention policy, you should check all the relevant regulations that might apply to your industry. Legal documents make a significant and essential part of your business recordings, and they vary from one business to another. For example, founding documents are proof that you own your company. They include files such as articles of incorporation of formation, partnership agreements, certificates, etc. To understand our main question better – how long to keep business records, we should first understand the difference among the most common categories of business records.
What types of business tax records do you need to keep?
The SBA and many state agencies recommend that you keep most of your business records for at least seven years after closing. However, many of the specific time requirements depend on the type of document and individual state requirements. A small business attorney can give you guidance that’s suitable for your business and the state in which it operated. When the period of limitations on your tax return expires, you’re no longer required to keep the tax return or its supporting documentation.
Department of Labor, also have recordkeeping requirements for discrimination claims. Many businesses choose to work with a tax relief solutions provider to minimize the impact of an audit and represent them before the IRS. You’ll be hanging onto those records indefinitely, as there is no statute of limitations.
Travel & gift expenses
You never when you may need these supporting documents as evidence to prove your compliance. As a business owner, it’s in your best interest to keep your business records organized and easy to find. It may require some work initially, either filing them based on the year or type of document, or scanning them to save space and then shredding the paper. But your effort will pay off in the long run if one day the IRS or a bank asks for these documents. Creating different retention policies for each possible scenario may prove impractical. Retaining tax returns and other records for seven years—starting from the later of the filing date and due date of the related tax return—offers a convenient rule of thumb.
Even businesses that entrust their records to a certified tax professional need to keep copies. The IRS and other taxing authorities can deny deductions that a company can’t support, even if an outside professional lost the documentation. However, CPAs cannot deliberately withhold records, even for unpaid fees. If you are a small business owner in Southeast Wisconsin, contact Nolan Accounting to handle your financial needs. They can handle your daily accounting and bookkeeping needs, payroll, and tax prep. Nolan Accounting can ensure that your business records are kept properly at all times, as per IRS requirements.
Say Hello to Better Online Accounting
Digital records serve the same function — and they don’t require a filing system to maintain. For instance, you can use your online bank statements instead of paper copies. Even your receipts can be scanned and digitized to provide a record of your income and expenses. They include records of credit card transactions, checking, savings, and investments. Businesses keep those documents to match them with their accounting records and confirm their expenses and income are correct.
These insights can help you refine your strategy and plan for the future, all while ensuring you stay in compliance with tax regulations. Another reason is that you can use these documents to estimate and evaluate your profits over time. This way, you will be able to plan your business activities and determine if you have enough funds to achieve your business goals and cover particular costs.
The Internal Revenue Service requires you maintain copies of your tax returns and supporting documents for three years. However, the IRS can audit you for three years after a filing and in some cases that period extends to six years if suspected of making a substantial error on your return. Therefore, keeping tax documents for at least seven years is considered sufficient time in order to defend any tax audits, lawsuits, or other potential claims. Why do you need to keep business records for so long after you’ve filed a tax return? For one, if the IRS decides to conduct an audit on your business, they’ll want to see documented proof of items like your business expenses, tax returns, claimed deductions, etc. If you don’t have this information archived and organized, your business could face major payment—even criminal—penalties.
As a rule of thumb, seven years is sufficient time for defending tax audits, lawsuits and potential claims. Remember always to keep a copy of your business’ income tax returns. Moreover, you must permanently keep a record of any relevant correspondences between your company and the IRS.
You should keep other administrative and legal records, such as contracts, licenses, etc.. At the same time, they are in force and longer for a reasonable time. Practical and real-world advice on how to run your business — from managing employees to keeping the books. Anything from customers citing negative effects from the long-term use of a product to employees discovering a health concern or injury and linking it back to time spent at your business.