What Tax Records Should You Keep… And For How Long?

tax-records

Except in a few cases, the law does not require any specific kind of records. However, you may want to include all of these items, no matter what process of recordkeeping is chosen:

  • Business checkbook
  • Daily summary of cash receipts
  • Monthly summary of cash receipts
  • Check disbursements journal
  • Depreciation worksheet
  • Employee compensation record
  • Any financial statements

Also, be diligent in keeping these records as well, whether it be the original source documents OR electronic copies:

  • Gross receipts
  • Inventory
  • Expenses
  • Travel, transportation, entertainment & gift expenses
  • Employment taxes
  • Assets
  • Cancelled checks

The requirements for how long to keep your business records are determined by your tax situation and, potentially, any legal stipulations on the actual business (tax wise or otherwise). Here are some suggestions on how long to keep the applicable records:

Indefinite number of years

  • You DID NOT file a tax return
  • You filed a fraudulent return or inaccurate return

7 years

  • You filed a claim for a loss from worthless securities or a bad debt deduction

6 years

  • You did not report income that should have been reported and it was more than 25% of the AGI shown on the return

3 years

  • You owe additional tax
  • You filed a claim for credit or refund when you filed your return

These are the guidelines, but business owners would be wise to keep all records for as long as possible, especially for businesses that still are operating. Turn source documents into electronic files to preserve the accuracy of documents and to conserve space.

For more information, download the Internal Revenue Service guide to Starting a Business and Keeping Records (p. 11 – 23).


 

About the Authors

liberty-tax-125Liberty Tax Service — Founded in 1997 by CEO John T. Hewitt, Liberty Tax, Inc. (NASDAQ: TAX) is the parent company of Liberty Tax Service. Liberty Tax’s online services are available through eSmart TaxLiberty Online and DIY Tax, and are all backed by the tax professionals at Liberty Tax locations and its nationwide network of approximately 35,000 seasonal tax preparers.

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