The Value of Tax Record Keeping
Maintaining accurate records helps you manage the day-to-day operations of a business and makes it possible to prove that your organization is in compliance with various laws and regulations. Keeping good records also helps when hiring business tax services or when seeking business tax advice.
When determining what records to keep for tax purposes, consider any documents related to your organization’s assets. You will need to include how buildings, tech equipment, company vehicles, investments, and any other assets were obtained. How much you paid and any debt incurred due to purchasing these will also need to be reported. If you’re selling assets, information regarding depreciation, how and when they were sold, and the price for which they sold should also be noted for tax purposes.
Other Documents to Keep
While saving every single document that comes through your business can certainly help when it comes to organized tax record keeping, filing away every piece of paper is rarely practical. Fortunately, the IRS only requires that you keep the most critical records on hand, such as those that support expenses and deductions, report taxable income, and any bookkeeping entries. Of course, supporting documents, like invoices, bank deposit slips, credit card receipts, and even cash register tapes, can help document your cash flow.
You’re required to keep documents that support the following:
Gross receipts: Your receipts show the total income your business receives annually. The documents should show the amounts as well as the sources.
Employment tax records: You’re required to maintain copies of employees’ and recipients’ income tax withholding allowance certificates ((Forms W-4, W-4P, W-4S, and W-4V). You must also keep records that include information, such as employee names, addresses, social security numbers, and employment dates, as well as your organization’s wages paid, tax deposits paid, and pension payments.
Purchases and expenses: Your records of purchases and expenses should highlight the cost that is required to keep your organization’s programs running. These documents are also useful for helping your business evaluate its year-end inventory value.
The law doesn’t usually mandate a specific tax record keeping system, but excellent organization definitely helps when it comes to using business tax services later. As long as your recordkeeping system clearly shows income and expenses, you should be fine. A popular approach is organizing records by year and type of expense or income.
How Long to Keep Records
As a general rule, the IRS requires you to keep records for as long as you’re able to claim a refund or as long as it takes for the IRS to assess additional taxes. Typically, the statute of limitations is three years after the date a return is filed or due (whichever is later). Of course, the tax information you prepare for your employees, such as those mentioned above, should be in your records for at least four years.
If you’re interested in learning more about tax record keeping, speak with a professional at Maxwell Locke & Ritter for in-depth business tax advice that pertains directly to your specific organization.