In the near future, just in case you will get audited or sued, you won’t have to worry if you kept in track with your financial statements. Aside from it being in handy, good business record keeping also helps you keep tabs on your expenses.
Financial records for your business are required to be kept according to the IRS. Did you know that already?
Records that are legally required to keep, how not to lose them, and how long should it be kept safe are going to be given in this guide for you to know.
How long should you keep your receipts and tax records?
In some cases, you need to keep your tax records for a long time, but generally, you can just keep it for three years.
The eight rules for recordkeeping for small business
Any documentary evidence that supports an item of deduction, income, or credit shown on your tax return such as bank statements, payroll records, receipts, invoices should always be kept.
You should store everything electronically, go paperless, and don’t forget to always make backups.
Expenses for lodging, transportation, meal, or anything that are less than $75 might not have a receipt or require one but that doesn’t mean you don’t have to tell the IRS about it, you still have to. You need to tell what the expenses are for and when the expense occurred.
You might need your documents for something else in the future even if you won’t need it for your taxes. So you better keep it whenever you are in doubt.
What are the receipts you should keep for your taxes?
Documentation that backs up your deductions, income, and credits are required by the IRS when you report on your tax return.
Below are the types of records you should keep:
Cash Register tapes
Official Receipts
Invoice
Deposit Information (credit and cash sales)
Proof of payment/Electric funds transfer/Canceled checks
Bank statements
Credit card receipts
Small cash payments cash slips
Payroll records
Accounts payable and receivable
Preceding tax returns
1099 and W2 forms
Any documentation that will support your claim of deduction, income, or credit which will be shown on your tax return.
Always keep the following business documents on hand even if you might not always need it:
Articles of incorporation
Any contracts you signed (with vendors, contractors, clients, employees, etc.)
Permits of your business
Regulatory documents for company health, safety, etc.
Annual reports
The best thing to do for recordkeeping for small businesses is to keep as many records as you can since the burden of proof is always on you. Backing up every item on your tax return with documentation will be your problem if you will not do it.
What’s the span of time should you keep the tax records you have?
According to the IRS, as long as needed to provide the income or deduction on a tax return, you should keep your records. So, generally speaking, from the due date of the tax return, or three years from the date the return was filed (whichever is later) you need to keep your tax records.
Let’s say on February 10, 2018, you filed your 2017 tax return which is two months ahead of the deadline. This means that three years after the deadline which is April 15, 2021, you would need to keep the tax records, receipts, and any other documentation related to your 2017 return.
Are you curious about why you have to keep it for three years?
The time during which the IRS can perform an audit on your return or the time during which you can amend on your tax return which is called the Period of Limitations is the reason why it’s three years.
You are no longer required to keep your tax return or its supporting documentation when the period of limitations on your tax return expires.
