What tax records do you need to keep? What is the retention period for those documents? These are all questions that small business owners ask. The IRS has many rules and regulations about what type of documentation needs to be kept and how long it needs to stay on file.
This blog post will answer these questions and provide guidance on what you need to retain as a small business owner.
How long you should hang on to tax records and receipts
It depends on the type of tax records you keep. Small business owners will likely need to hang onto most, if not all, of their receipts and documentation for at least six years past the filing year.
For example, small business owners must usually retain W-BEN’s (Wage & Tax Statements) for employees until they provide a final wage statement with each employee leaving or retiring from your company.
Suppose an IRS agent audits you and they may ask to see some financial documents, including bank statements and information about credit card transactions – typically up to seven years back in time. They will also want copies of sales invoices and purchase invoices showing how much was paid out for assets like equipment and furniture.
What about those tax returns?
The IRS requires you to keep your personal and business tax returns forever as long as the statute of limitations on any potential audit is open. This means that if there was a mistake or omission made during filing, you need to hang onto all records for six years past the date of the original return filed (three more years beyond when they’re no longer needed). If it exceeds seven years, then we recommend hanging onto them until the statute runs out. If you don’t know how does a business pay taxes, you can consult with a lawyer.
What are the record-keeping rules for small business owners?
If you are self-employed or have your own small business, the law requires you to keep all records for at least six years past the filing year. Some of these documents may include bank statements and receipts from purchases. If you are an employee with a company that handles payroll taxes, they should provide W-BEN’s – which will need to be kept by the employer for up to seven years after being filled out. IRS audit representation with Key Tax can guide you further to figure out what to keep and what to dispose of.
What if I change businesses? Do I still have to hang on my tax records?
Yes! As long as there is any potential statute open (i.e., three more years beyond when needed), it’s important to hold onto documentation in case someone comes looking for them later down the road.
If you decide to sell your business or close it down, make sure that all records are turned over to the new owner and kept in a safe place until the IRS no longer needs them. If you have employees, then be sure to give their W-BEN’s to them since those can only legally stay with current employees for up to seven years from when they were filled out.
What receipts to keep for taxes?
When it comes to keeping records, your best bet is always to hang onto everything. Small business owners need to keep track of any and all expenses that can be deducted from their taxes to prepare accurate filings and save the most money on taxes possible. Suppose an IRS agent ever audits you. In that case, they may ask for documentation such as receipts and bank statements – so we highly recommend hanging onto these documents even after the filing year has passed.
What tax records do I need?
Small businesses should hold onto some basic types of tax-related information:
(a) W-BEN’s (Wage & Tax Statements), which include employee wages paid
(b) sales invoices and purchase invoices
(c) receipts for equipment and furniture purchases.
When do I need to keep my tax records?
Business owners must hold on to certain documents at least six years beyond their filing year so long as there is no statute open, allowing an additional three more years. This means that if you filed taxes for 2015, then it is okay to get rid of them after the statute runs out in 2020. Suppose there is a possibility that an IRS agent could come knocking and ask questions about your filing or require documentation. In that case, we highly recommend hanging onto all records until the seventh year past when they no longer need to be kept on hand.
What are some tax deductions?
Small business owners can deduct expenses related to their businesses, including office rent and equipment purchases such as computers, printers, bookshelves, etc. They may also include travel costs for conferences/training sessions – though mileage must fall within certain guidelines (50 miles one-way distance limit). More deductible expenses, including car insurance payments and medical expenses, vary in specific circumstances.
Are there any documents I don’t need to keep?
We recommend hanging onto all tax documentation to be safe – but that being said, there are some documents that you can get rid of if they aren’t needed. For example:
(a) bank statements older than seven years should be shredded or destroyed since these contain your personal information and shouldn’t fall into the wrong hands
(b) old W-BEN’s may also be discarded after a certain amount of time has passed. Those filled out in January 2016 will not need to be kept beyond 2021 (seven years from the filing year). For this deduction to apply, though, it must have been filed correctly with correct employee wages shown on them as well as withholding taxes deducted from their paychecks. This is crucial otherwise, any IRS agent will be able to tell if a W-BEN is fraudulent.
Interesting Related Article: “Everything You Need to Know About Filing Your Taxes“