WooCommerce Role-O-Matic

Likewise, these records can help support your business in case of any legal issues. Business records are also important for future lenders and investors, who will want to see accurate records when deciding whether or not to invest in your business. The main reason to maintain business records is for tax and auditing purposes.

• It’s best to maintain your records with the help of an experienced bookkeeper and electronic accounting software.
• If your company meets these requirements, you’ll need to keep all hiring records for each position for at least one year from the date of the hiring decision.
• The IRS has determined that electronic records are the same as paper originals.
• But again, separating accounts makes keeping business records easier.
• Returns filed before the due date are treated as filed on the due date.
• The IRS also says that it can come after your business for failing to report income for up to 6 years after filing and for up to 7 years if you took a deduction on a bad debt.

This includes California, which can investigate 12 years of tax history in businesses suspected of fraud. If you sent your 2021 to 2022 tax return online by 31 January 2023, you must keep your records until at least the end of January 2028. She also says you may want to invest in a safe deposit box for papers that can’t be easily replaced. These include original birth and death certificates, Social Security cards, passports, life insurance documents, and marriage and divorce decrees.

Period of Limitations that apply to income tax returns

In both events, you may need access to your business’s documents and financials to validate your claims and defend yourself against accusations of wrongdoing. Once you have created your records retention program you need to communicate it with everyone in your company. Place the guidelines in your employee handbook and cover it every year with any changes. As an extra layer of security, scan your documents, making sure they are clear copies, says Herron. To protect your data, make sure the storage provider uses encryption technology. You can also store copies of your files in folders on an external hard drive that is password-protected.

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 how long to keep business records need to keep records connected to the property until April 17, 2024 (i.e. three years after the filing date of April 17, 2021). The guidelines may vary depending on your industry and circumstances.

Payroll Tax Records

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. Because the burden of proof is on you to back up every item on your tax return with documentation, the best approach to recordkeeping for small businesses is to try to keep as many records as you can. Document retention guidelines typically require businesses to store records for one, three or seven years. If you’re unsure what to keep and what to shred, your accountant, lawyer and state record-keeping agency may provide guidance.