How long should a business owner keep their records?

As a business owner, it is essential to maintain a copy of tax returns and supporting documents. In addition, maintaining records is essential in order to ensure that your business runs smoothly and you are well prepared for any tax questions, audits, or any amendments that may come up in the future. According to tax lawyers, the Internal Revenue Service (IRS) offers guidelines to taxpayers that they should keep records of their taxes and their tax paperwork.

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Time Matters

As per the IRS, ideally, records related to taxes should be kept for three years. However, it is advisable to maintain records for a longer period, at least 7 years, as a precaution or else you may end up in trouble with the IRS.

According to the IRS:

• Employment records must be retained for at least 4 years after the tax is paid.
• Claims for bad debt require records to be kept up to 7 years.
• Failure to report income that is more than 25% of your gross income declared on your return requires you to keep records for 6 years.
• Keeping records for 3 years is essential if you owe any additional tax.
• If you fail to file a return or file a fraudulent return then you need to keep records for an indefinite period.
• Tax credits or refunds claim after filing your return requires you to keep records for 3 years from the date of filing.
• Property tax records must be kept indefinitely, so that you can substantiate any loss or profit when you sell your property.
• It is essential to keep tax records related to Net Operating Loss (NOL) for as long as you use it to offset taxable income.

While there is a statute of limitations set by the IRS, it is advisable to maintain a marvelous recordkeeping system and file records for as long as possible and tax attorneys advise their clients on this all the time.

Documents that are used as proof when filing your return need to be kept for a longer period. Documentation can be electronic or on paper, however, that does not affect the duration that they are required to be maintained. In case of an audit, electronic documentation is required to be converted to paper.

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Neil McCauley and his team did not need a tax lawyer.

Precautionary Measures when keeping Records

When using specific tax software it is essential to make sufficient copies of the files and data. Files ought to be backed up and stored safely on a computer disk or a thumb drive. Keeping a copy in a fire-proof safe is advisable. Make sure that all the files and software are transferred if you decide to upgrade or use a new computer. It is prudent to follow the ‘When in doubt don’t throw out’ rule.

A key ring USB can come into play here.

Tax related information could be required at any time, caution tax lawyers. Moreover, it may be to your benefit, therefore, it is advisable to invest in a suitable recordkeeping system and keep records for as long as possible.

If you do decide to destroy certain documents after the statute of limitations expires, make sure you shred all paper documents since they contain confidential and personal information that you would not like to be exposed. In addition, all electronic evidence must be deleted from your computer’s hard drives. It is recommended that you do not donate or sell computers that contain confidential tax information or any private information for that matter.

Make sure you trust your computer maintenance professional as well. They could come across your private information or see it point blank if working on your computer.

How to Find Legal Help

If you have any issues with tax returns, back taxes, tax audits, tax evasion, or summons-enforcement proceedings, what you need is a tax lawyer by your side to protect your rights. When negotiations break down a legal counselor can help pursue the best possible administrative or judicial remedy. Click on the link above to find that tax legal help you require.

Contact us via the website if you have to as well. We will do our best to make sure you are in wonderful hands.