How Long to Keep Business Tax Records and Receipts Bench Accounting

Also consider having paperless statements and documents, which can help reduce the risk of identity theft posed by lost or stolen mail. For physical documents, designate a safe, out-of-the-way place in your home to store all paper records that protects them from damage or theft. For digital records, be sure to archive and back up all electronic records. It’s a good idea for these records to be password protected. Secure cloud storage services likeDropbox,Evernote, orGoogle Drivehelp make digital record keeping easier.

In this guide, we’ll walk you through which records you’re legally required to keep, how long you should keep them, and how to make sure you don’t lose them. With the threat of identity theft, it is also good practice to shred all of the records you no longer need, especially those with personal information. Shredders are an inexpensive means of destroying small amounts of information. However, a personal shredding service should be considered with a large volume of shredding. Experts advise that you keep these documents for at least seven years after an employee leaves or is fired. In addition, if an employee was injured on the job, you should keep any related records for up to ten years after worker’s compensation was paid. Your Employer Identification Number or Tax ID Number is like a social security number.

For past tax returns

But your effort will pay off in the long run if one day the IRS or a bank asks for these documents. These records allow companies to both prepare their tax returns and prove the return’s accuracy during tax audits. The IRS and other tax authorities can deny deductions for unsubstantiated expenses, potentially leading to interest and penalties. The IRS recommends you keep most tax-related records for three years.

The IRS can audit your business’s financial records up to seven years in the past and even further back when you don’t file a tax return or are suspected of fraud. Most CPAs tell you to keep all business documents for at least seven years after they’re no longer relevant. IRS record retention rules apply to records that helped you calculate how long to keep business records or justify business income, tax deductions, or tax credits. The DOL requires that you keep any documents that help you do payroll. The length of time you keep and maintain records depends on the item, expense or event memorialized by the record. A nice starting point is determining the period of limitations for the item recorded.

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Simply use a cloud-storage or an encrypted/password-protected hard-drive. IRS accepts digital copies of tax records and documentation, but they have to be identical to the original receipts and records. However, this does not mean that you can discard the hard copy of the tax record because IRS can always ask for the printed original document at any point. Digital file management systems offer many advantages, though companies must keep paper originals of some documents. Electronic files take up much less physical space, allow for easier access, and enable quick backup. As a result, many businesses manage their records almost entirely electronically. Knowing how long to keep tax returns and other records can help businesses respond to information requests.

Financial goals

Bank of America clients can easily manage paperless statements and documents using Mobile and Online Banking. Creating a digitized version of your essential records is a great way to avoid accidentally tossing small scraps of paper during spring cleaning. Its recommended to scan every document or receipt in your business, save it with a descriptive name, and then archive it. The IRS accepts digital copies of all documents as long as they are identical to the paper versions. So, note that if the IRS requests a paper copy, you must produce one. Regardless of IRS regulations on corporate recordkeeping, it is a good idea to keep and maintain corporate records for your own usage. Journals and ledgers detailing transactions, purchases and events are an effective means of organization.

• Form your business with LegalZoom to access LegalZoom Tax services.
• Good business recordkeeping lets you prepare financial statements, helps you keep tabs on your expenses, and comes in handy if you ever get sued or audited.
• You’ll put yourself at risk of fraud or identity theft if you simply throw away private documents, such as financial statements.
• Read on to learn about retention periods for your accounting documents.

We have the expertise to handle all of your tax, accounting, and business needs. We are a full-service firm offering a wide range of services, including auditing, tax preparation, estate planning, and more. Our team of experienced professionals is ready to work with you to achieve your financial goals. While some documents should be kept permanently, others can be disposed of after a certain amount of time has passed.

You’re reporting lodging or meal expenses under an accountable plan with a per diem allowance. Go paperless, store everything electronically, and always make backups. Keep in mind that what follows is just general guidance, and not necessarily the final word. Your accountant or tax advisor may have different recommendations for your situation. Depending on your business and the state where you are located, you might have many types of HR records that fall under the jurisdiction of different government agencies. If you decide to sell your business, potential buyers will want to review historical records as part of their due diligence. Lenders whom you approach for financing might require income, sales history, and other documents.

• However, there are some situations where you should keep records for longer.
• Not only can you file for an amended tax return via these records, but these can also help you prepare your future tax returns.
• Tax Records are required to be retained for a minimum of five years from the date of filing or due date of the returns whichever is later.
• Without the appropriate documentation, you could trouble succession planning issues.

Without documentation, a company might have difficulty defending its deductions during a tax audit, applying for a loan, or obtaining new investors. The IRS also requires corporations to keep tax documents for anything claimed as depreciation. https://www.bookstime.com/ Depreciation is an income tax deduction businesses can claim for the general wear and tear of company assets. If an item depreciates for seven years, all records pertaining to that item should be kept for those seven years.

Learn which one is right for your situation and what steps you need to take to obtain them from the IRS. Failure to maintain corporate records could cause the corporation’s owners to lose liability protection. Discarding tax records too early could cause significant liability for your business. Some states, including Texas, Illinois and North Dakota, have adopted this standard.

• Its recommended to scan every document or receipt in your business, save it with a descriptive name, and then archive it.
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• Electronic files take up much less physical space, allow for easier access, and enable quick backup.