It helps to keep the right records when filing tax returns. If you report an expense or income on your taxes, you need to document it. In most cases, these are the same records you use to prepare regular financial statements. Keep them organized and somewhere easy to access. Keeping good records is very important when you own a small business.
Your records will help you project your tax liability. Once you do that, you can make estimated tax payments. Want to benefit from allowable tax deductions?
Then you need to keep track of your receipts. If you don't, you'll probably forget about some of your expenses. Then, you won't be able to deduct them when you file your taxes. The most important reason to keep detailed records is for audits. If they do, they'll request documentation. Hopefully, this will never happen to you but if it does and you aren't prepared, you could be in trouble. If you can't support all the deductions you've claimed, you will lose them.
You may even need to pay them back. Hopefully, the last situation won't apply to you. Not filing taxes is illegal. It can cause your business to fail and you may even face criminal charges.
If you're audited once, it can happen again. This is especially true if your first audit goes badly. That's why you should always keep your business records. Stick to the IRS recommendation of six years. Keeping business records takes time and space, but the benefits are worth the sacrifices. Having peace of mind as a business owner is invaluable. It's more important to be prepared than have extra filing space.
When you get rid of old documents, do it safely. You don't want your information in the wrong hands. Shredding all paperwork is best. Tearing papers in half and throwing them away is not wise.
Protecting your information should be your first concern. Being careless could put your business security at risk.
Your CPA, outsourced accounting service or tax attorney may recommend a different approach based on the rules of your industry and the specific needs of your business. Blog Careers Login. Our Blog.
Resources Blog. Author : Dennis Najjar. Comments: 0. In most cases, the IRS can audit you for three years after a filing, but that time period extends to six years if the IRS suspects you made a "substantial error" on your return. Payroll tax records, including time sheets, wages, pension payments, tax deposits, benefits and tips must be kept for at least four years after the date the taxes fell due or the date you actually paid them, whichever is later.
Current employee files should be retained for at least seven years after an employee leaves, is terminated or retires. However, if an employee suffers a work-related accident or files a claim against the business, it's advisable to retain your records for up to 10 years after the claim is resolved. This is mainly due to the Period of Limitations , which is the time during which you can amend your tax return, or during which the IRS can perform an audit on your return.
For example:. You should keep employment tax records for at least four years after the date that payroll taxes become due, or are paid whichever is later. Hoping to get away with tax fraud? Just something to keep in mind! The standard three year period of limitations applies to any deductions you make related to your property depreciation, loss from a sale, etc. But sometimes the length of time between when you dispose or sell your property and when you no longer need to keep those documents can be longer than 3 years.
Say you dispose of a property by selling it during the tax year, report the financial gain on your tax return, and file your tax return right on the tax deadline of April 17, These records usually include deeds, titles, and cost basis records for instance, receipts for equipment such as computers or vehicles.
If you have online banking, no. The digital copy will be just fine. This means you must be able to produce a printed, legible copy of the document for them upon request. Digitizing your records is also a great way to avoid accidentally tossing them in a move or an overzealous fit of spring cleaning. We recommend scanning every record and receipt in your business, tagging it with a descriptive name, and archiving it forever. If you do end up going the paperless route, remember to keep a backup copy of your documents in a secure second location, like a password-protected hard drive, or a secondary cloud storage service.
Your Bench subscription includes unlimited document storage, which means you can keep every receipt, invoice, or IOU in the same place as your bookkeeping.
At year-end, your CPA or tax professional can review your documents and completed financial reports side-by-side, making tax filing a breeze. Learn more. Hold up.
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