How long should you keep your tax records?

Keeping records for the right amount of time is confusing for many of our clients; after all, we know you would rather spend your time in your business than on your business.

Are you a pack rat or have you gone digital? How about a mix of both? Either way, very few records need to be kept forever. What’s important is to know where to find something and know the government’s requirements. You’ll want to hold on to your receipts, statements, and other documents based on tax year and, in some cases, for other reasons.

Sure, there are resources readily available on this topic, but here’s a comprehensive guide based on the most-often-asked questions we get from our clients.

How to Stay Organized

Beyond deciding what to keep and how long to keep it, how about getting organized so you can actually find something without tearing up your entire office—and that includes organizing your digital files. I find that it’s best to have a set of finite categories for your files; the most popular categories include:

• Operating expenses

• Invoices

• Clients/customers

• Payroll

• Capital expenses; note this now includes anything costing more than $2,500.

• Personal records

Create a labeling system that lets you know when it’s time to shred or delete your files. For example, if you use QuickBooks Online Payroll or a program such as Gusto, your payroll history is always online and available to you.

Either way, Certum can help you get organized based on your books, so you’ll be ready for tax filings and anything else that comes up during the year.

Financial Records you Need to Keep

The decision of what to keep, and for how long to keep it, depends on your business; for reference, here’s a link to the official IRS requirements.

In most cases, tax records are kept 3 years from the filing deadline, or the time the taxes were actually filed and paid. This timeframe is standard because it reflects the period of limitations. During this time, tax returns can be amended, and the IRS can assess additional taxes.

However, based on the pandemic, if your business and personal tax returns were anything like mine over the last several years, we know that filings were definitely not in sync with traditional filings.

Based on IRS requirements, here’s a quick 7-point summary for tax returns:

1.     Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.

2.     Keep records for 3 years from the date you filed your original return, or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.

3.     Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.

4.     Keep records for 6 years if you do not report income that you should report, and that income is more than 25% of the gross income shown on your return.

5.     Keep records indefinitely if you do not file a return.

6.     Keep records indefinitely if you file a fraudulent return.

7.     Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Property Records

Keeping property records has more to with the period of limitations, and when they expire for the year you disposed of the property. According to the IRS, you must keep these records to figure any depreciation, amortization, or depletion deduction, and to determine the gain or loss when you sell or otherwise dispose of the property. If you sell the property, you will need to report the sale on your next tax return—and be sure to bring this up with your tax accountant; there could be capital gains issues!

When it’s Time to Shred

If you church or synagogue has an annual shred day in the spring, don’t go wild and take every document you have; be judicious. We all used to keep register receipts—and we all know how fun it is to see how long that CVS receipt can be—but with contactless payment, who needs the extra paper unless you think there’s a good chance you’ll return an item?

How about bank statements? Credit card statements? Since everything is online, why keep the paper? Did you know you can opt-in for paperless statements? In some cases, you can even save money by doing that. For example, find out if your cable or phone provider can give you a credit if you opt for no paper. It saves the money and saves you the time you would have taken to shred the statements.

I hope these points help you become more organized. My best advice is to let Certum help you with these matters. Even if you think it’s a silly question, we will have the answers for you. Our goal is to get your books organized and ready for tax time, and to help you spend less time sweating the small stuff. accounting near me - accountant near me - accountant Charlotte, NCaccounting near me - accountant near me - accountant Charlotte, NC