How Long Should You Keep Statements and Tax Receipts?
Well-organized records make it easier to prepare a tax return, trust us, we know! Staying organized and having a filing system in place can help the process of retrieving information, and/or discarding documentation when it is no longer needed. Generally, the IRS recommends that you keep tax records for three years after filing. This time frame is recommended because that’s the amount of time you have to amend your return to claim additional eligible credits or refunds — and it’s typically the amount of time the IRS has to audit you to try to collect any additional taxes owed.
Everyone in business must keep records. Good records will help you do the following: monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and/or support items supported on tax returns. For the most part, the actual time to keep records isn’t that simple. We will provide you the federal guidelines, however it is important to note that your state tax authority may operate under different standards.
We recommend that you save your tax documents until the time for an audit runs out, some documents require a longer time. Typically, the IRS has three years after the due date of your return (or later if you filed through an extension) to begin an audit of your return. This includes receipts you used to document expenses.
If you have employees, the IRS suggests that you retain all employment tax records for a minimum of 4 years after the date those taxes were due or were paid, whichever is later.
Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
Sometimes business owners loan money or provide credit to people who can’t pay back, if that is the case, you might be able to write off bad debts. For filing a claim for an overpayment resulting from a bad debt deduction or a loss from worthless securities, the time to make the claim is 7 years from when the return was due.
Not limited A.K.A. Forever
Keep records indefinitely if you do not file a return, or if you file a fraudulent return. In other words, there is no statute of limitations on fraudulent or unfiled returns.
We recommend that you keep tax documentation the entire time you own property, and for three years after that. You may need this documentation to prove taxable gains or deductible losses when selling the property, or to make sure you correctly calculate depreciation, amortization or depletion deductions.
Although many people keep paper records, we also recommend that your business have the documents converted to electronic files and stored in the cloud. It's a good idea to have two sets, in case one is destroyed.
If in doubt, it’s often better to keep records rather than toss them.
Consult with us, your tax and accounting professionals, to look into your individual circumstances to help guide your particular business on its record keeping and disposal policies. To avoid identity theft and to protect sensitive business information, be sure to properly dispose of or shred appropriate business records. For more on tax record keeping and retention, please call us/message us and allow us to take care of your business.