Record Retention Policy: How Long to Keep Business Tax Record

Many companies store such documentation in a corporate binder. Keep the binder in a safe space (even if it just collects dust). It’s one of the first things that will be requested should you want to sell your company or be involved in an audit or lawsuit. Lastly, keep in mind that you’ll need to keep originals for important documentation. These are things like articles of incorporation, business licenses, partnership agreements, and any signed contracts.

Unfortunately, there isn’t a hard-and-fast retention rule that would apply to all kinds of records. It would be best to determine what types of documents you have stored, categorize them, and make a retention policy. The most important reason to keep detailed records is for audits. You never know when the Internal Revenue Service (IRS) might come.

Property

The IRS might have a question about business expenses on your income tax return, so you’ll want to be able to prove the purchase was business-related. This will also come in handy if you claim a deduction or depreciation for equipment. The IRS, other taxing authorities, creditors, and investors all might demand to see a business’s tax records. Without documentation, a company might have difficulty defending its deductions during a tax audit, applying for a loan, or obtaining new investors. Your Bench bookkeeping team automates your financial admin, connecting bank accounts, credit cards, and payment processors to import information into our platform. Your team also answers questions and completes your tax prep ahead of filing.

Insurance records contain vital information about your insurance coverage that can protect your business or provide you with a refund for certain damages. You may have general business liability insurance or insurance for different aspects of your company, such as auto insurance or renter’s insurance. direct cost They can keep your personal and professional purchases separated. After you’ve reviewed federal rules and your state’s document retention schedules, you may still have records that you’re unsure about. In this case, the Uniform Preservation of Private Business Records Act (UPPBRA) is a good guideline.

Insurance Documents

Be sure to check the terms of each account to see how long they keep historical records. If it’s shorter than 7 years, you may need to download and save an annual statement in order to have it on hand for tax recording. In the US, there are several federal anti-discrimination laws that apply to recordkeeping and hiring. 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.

Be careful if you transfer some of your personal funds into your business account, essentially making a “loan” to the business. Keep complete records of that transaction so that you don’t include the money in your taxable business income by mistake. Remember, to keep a backup of all digitized records in a secure second location, like a password-protected hard drive, or a secondary cloud storage service. In case your original tax return records are lost or destroyed, you can always obtain a duplicate transcript or copy of your tax returns from the IRS. You can do this by contacting the IRS via the website, email them, call or send a written request. If you have omitted any income from your tax returns, then you must keep a record for at least six years.

The Importance of Keeping Business Records

Your accountant or tax advisor may have different recommendations for your situation. Developing a digital strategy and tweaking it over time will help your business shine online, reach more customers, and achieve greater success. If you’re concerned about how to protect your assets from nursing home costs, you’re at an advantage if you can plan at least five years out.

Also, hang on to payroll and employee income records for tax purposes. You may need to prove that an employee worked for you the number of hours they claimed. There are certain documents that need to be kept indefinitely. These include your company formation documents, such as articles of incorporation (for corporations) and articles of organization (for LLCs). Failure to maintain corporate records could cause the corporation’s owners to lose liability protection.

Bank account

If your business is incorporated, you need to keep business finances and personal finances separate. Your business records need to be organized, clear and distinct to avoid audits. On the other hand, sole proprietors can mix both categories—and have to be extra careful to keep all relevant records.

Organizing your physical and cloud-based storage along with developing a DRP is the best way to ensure your organization complies with record-keeping standards. Review all guidelines carefully and come up with a plan that’s easy to implement and stick with. Other documents, including permits, licenses, and insurance documents need to be kept on file until they expire. You must store expired documents somewhere until you receive replacements with the new dates on them. Before you toss them, double check to see whether anyone else you do business with might need them. Creditors, business lawyers, and insurance companies all sometimes require you to keep records longer than the IRS does.

Exceptions to the three-year rule

As a small business owner, you know that there are certain business records you are required to keep. The length of time they should be kept depends on the event, action, or expense that is being recorded. As a general rule, you must keep records that support an item of credit, deduction, or income on a tax return until the period of limitation for that tax return runs out. Typically, the IRS will only audit taxes from the past three years. Make sure to file your taxes promptly and accurately and keep business records connected to your income and expenses.

• It’s more important to be prepared than have extra filing space.
• This also provides the capability to backup all your information onto online cloud storage.
• Some accountants suggest keeping things like financial statements, profit and loss statements, and audit reports indefinitely.
• This covers almost all documents for businesses that file all required tax returns without fraud.

For example, founding documents are proof that you own your company. They include files such as articles of incorporation of formation, partnership agreements, certificates, etc. To understand our main question better – how long to keep business records, we should first understand the difference among the most common categories of business records.