How-To determine what 10 Tax Records are Best to Keep For Your Business
Let’s keep this short and sweet. As a business owner you have a responsibility to maintain books and records for your business. The guidance from the IRS states we should maintain 7 years worth of records. The question is always what records should we keep? The 2 lists below give you a basic required list and an advanced ‘nice to have’ section. Keep these records and you’ll not only know how your business did but be able to prove expenses and operation if asked!
Here are some of the basic tax related records that you must retain at all times:
- Business Income Tax Returns
- Cash and credit sales deposit
- Cash register tapes
- Bank statements
- Credit card statements
- Payroll records
- W2 and 1099 forms
- Employee records
Other business documents that we recommend keeping:
- Business contracts
- Business permits
- Articles of incorporation
- Business health and safety or other regulatory licensing documents
- Annual financial reports and financial statements
The Final Word
Remember, as a 1099 contractor or a business owner; you will have to bear the burden of proof. Meaning you will be obligated to produce all tax return documentation. Therefore, the most effective way to do this is to establish a system to maintain records and know how long to keep those records for the business. If you are in doubt whether to keep a certain record, receipt, or document, we recommend you keep it. Better safe than sorry.
The IRS accepts digital copies of tax records and documentation, but they have to be identical to the original receipts and records. This makes a scanner app valuable as part of your business operation. Electronic documents pervade nicely and hosted services like iCloud or Google Drive can make the maintenance of all these documents easy and organized. A simple folder structure with an annual heading, monthly folders with a structure of income, expenses and financials are sufficient to hold everything from checks received, to bills paid to bank and financial statements. The paper can then be securely discarded.
Remember that while the guidance is 7 years for records, there is no statute of limitations in place for fraudulent returns. This means that the IRS can audit your records going back indefinitely if fraud is suspected. Our recommendation is to scan your documents and save them online!