Financial Record Keeping: What You Need to Know
Sometimes it may seem as though your business is being overrun by paperwork. Between invoices, receipts, employee records, tax returns, and more, the average business generates a lot of records. The question is, how much of this stuff do you need to keep – and how long do you need to keep it?
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The following guide provides the basics of what you need to know about financial record keeping. If you’re not sure about a particular item the best rule of thumb is when in doubt, don’t throw it out!
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Business Income Tax Records:
The IRS requires that records be kept for as long as they may be needed to prove the income or deductions on a tax return. For most items this means a minimum of three years from the date on which the associated return was filed, although some records may need to be kept longer.
Items to keep include:
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Bank statements and cancelled checks
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Cash register tapes, receipt books, petty cash slips
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Invoices and credit card slips or statements for both purchases and sales
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Real estate closing statements
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Forms 1099-MISC
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Any other documents that substantiate the items claimed on your tax returns
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Copies of your actual tax returns should be kept indefinitely.
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Employment Tax Records:
All employment tax records must be kept for at least four years after the date on which the tax became due or was paid, whichever is later.
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Business Assets Records:
Keep any records you might need to determine any depreciation, amortization or depletion deduction, to calculate your basis for computing gains or losses when you sell or otherwise dispose of your properties. Records relating to property should be kept until the period of limitations expires for the year in which you make a taxable disposition of the property.
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Non-Tax Reasons to Keep Records:
Before you dispose of any records, be sure that your insurance company does not need them (in case of a claim) or that you do not need to keep them to satisfy the requirements of your creditors or lenders.