This guide provides information on record retention and details which document and records need to be kept and for how long. Essential policies and best practices will be covered, as well as a detailed retention schedule, to help streamline record-keeping processes. Because you are required to pay the correct amount of tax and account for your business purchases and sales, it is essential you keep adequate records. For more information on keeping records, you may download Regulation 1698, Records and Publication 116, Sales and Use Tax Records. In addition, tax tip publications prepared for specific types of businesses include information on record keeping. You can access these publications from All Publications on the California Department of Tax and Fee Administration’s (CDTFA) website.
How long do I need to save business tax records?
To fulfill tax obligations, you need to keep extraordinarily good records of your financial transactions, including quantities, dates, and the nature of each transaction. The IRS has a certain period of time during which they will audit you, so keep that in mind when establishing specific record retention guidelines for your company. Tax returns and forms should also be kept on record, generally for a period of up to six years after filing. Some other records connected to taxes will need to be kept permanently, however. It’s also important to note the specific retention requirements for each type of document that’s kept. For example, business records like articles of incorporation and contracts must be kept indefinitely.
Record Retention for Businesses and Individuals: What You Need to Know
For example, keeping employment contract agreements can help if you run into a dispute. In today’s digital age, both paper and electronic records are acceptable forms of documentation. Make sure that records you have scanned into your computer files are legible, however.
Sales and Use Taxes
You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property. “The IRS can audit you for no reason, or any reason, for three years from the date you filed your return,” said Paul Mendelsohn, a CPA in Livingston, New Jersey. For those of us with paper records dating to the Clinton administration, that would seem to mean you can throw them away. To remain fully compliant with I-9s, you’ll likely need https://www.bookstime.com/ to store them separately from an employee’s general personnel file.
FAQs on Tax Record Retention
The IRS says you can use any recordkeeping system as long as it “clearly shows your income and expenses”. But unless you’re auditioning to appear on an episode of Hoarders, you should probably go paperless and store everything electronically. Say you dispose of a property by selling it during the 2018 tax year, report the financial gain on your 2020 tax return, and file your tax return right on the tax deadline of April 17, 2021. That means you’d need to keep records connected to the property until April 17, 2024 (i.e. three years after the filing date of April 17, 2021).
Are there any documents I don’t need to keep?
- Her work has been featured in Forbes, Money, Business Insider, WealthFit, Accounting Today, LendEDU, CreditKarma and more.
- And in addition to this, there are other record-keeping requirements for your small business.
- While you may trust your team members, you should still limit access to sensitive files to only those who need it.
- In the record retention policy, define the timeframe for keeping records to meet legal, regulatory, and operational requirements.
- If you have unusual or extenuating circumstances in your life please check with your accountant or attorney before pitching any important legal, business, or financial paperwork.
Keep receipts for cash purchases exceeding $75, such as a laptop or home office equipment. Additionally, if you are on a work trip, you must retain lodging payment receipts, regardless of the amount. While the IRS doesn’t expressly require receipts for small purchases during business travel, you should hang on to your receipts for lodging, even if the cost was under $75. Payroll Taxes It’s likely that you booked a hotel online, so the record is digital anyway, but if you happened to pay in cash, make sure to hang on to the document. To avoid receiving a negligence penalty, which happens when you can’t prove you qualified for the credits or deductions you received, it’s also smart to keep copies of your receipts for purchases over $75. If you’ve made a big purchase and can’t find the receipt, contact the vendor and ask for a copy for your records.
- Creditors, business lawyers, and insurance companies all sometimes require you to keep records longer than the IRS does.
- These are usually kept in books called journals and ledgers, which business owners can buy at an office supply store.
- Because of the complexity of the regulations, many employers prefer to keep records longer than is legally required.
- You’ll be hanging onto those records indefinitely, as there is no statute of limitations.
- If you have employees, you’ll want to get a clear understanding of what documentation related to hiring you need to keep.
If you have financial records or documents you aren’t sure you’ll need, err on the side of caution. Digitizing your records is also a great way to avoid accidentally tossing them in a move or an overzealous fit of spring cleaning. Plus, let’s not forget that paper records can fade, how long do you need to keep business records and are susceptible to damage.