In Pursuit of Profit
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The law requires businesses to keep complete and adequate records for a period of at least five years. In general, records should be kept that provide:
Other important records to keep include:
What employment records must the business keep and what rights does the worker have to obtain copies?
Is it legal for a business to make changes to time cards?
How long should I keep records according to the IRS?
The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.
The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The information below reflects the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.
Period of Limitations that apply to income tax returns
The following questions should be applied to each record as you decide whether to keep a document or throw it away.
Are the records connected to property?
Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.
What should I do with my records for non tax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.
What is the burden of proof?
The answer to how long business records should be kept depends a great deal upon whom you ask and what the record pertains to in your business. The IRS sets some basic record retention standards for tax records. Depending on who you ask; lawyers, accountants, banks and government agencies all seem to have different ideas about how long to retain business records. Depending on your circumstances, both paper and electronic documents need to be considered in your record keeping plans.
It is important to consult with your attorney or tax professional for your specific circumstances regarding record keeping and disposal policies. Be sure to properly destroy or shred business records when appropriate to avoid identity theft and to protect sensitive business information.
We would be happy to answer any questions about keeping records specific to your business. Please contact us here.
Resource: The IRS Publication 583, Starting a Business and Keeping Records at http://www.irs.gov/pub/irs-pdf/p583.pdf