Tax document retention guidelines for businesses
Your taxes are filed. But the office and computer files are bulging with all the records you’ve accumulated throughout the year and the years before too. You’ve saved receipts, cancelled checks, pervious tax return filings, financial and employee records and more. You are faced with the hard reality that you can’t keep everything. But what do you throw away? How long do you need to keep certain records? Follow these retention guidelines as you clean up.
Generally speaking
For records that support items on your tax return, generally speaking, you need to keep them for three years. That’s usually when the statute of limitations runs out. So you can now throw out your 2014 tax year records if you filed the return for that year by the regular filing deadline. But there are a few exceptions to this rule.
For example, there’s no statute of limitations if you fail to file a tax return or file a fraudulent one. So you’ll generally want to keep copies of your returns themselves permanently, so you can show that you did file a legitimate return.
Also bear in mind that, if you understate your adjusted gross income by more than 25 percent, the statute of limitations period is six years.
Regarding your business
Records substantiating costs and deductions associated with business property are necessary to determine the basis and any gain or loss when the property is sold. According to IRS guidelines, you should keep these for as long as you own the property, plus seven years.
The IRS recommends keeping employee records for three years after an employee has been terminated. In addition, you should maintain records that support employee earnings for at least four years. (This timeframe generally will cover varying state and federal requirements.) Also keep employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.
For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations period.
Regulations for sales tax returns vary by state. In Ohio you must retain your records of sales and tax charged for four years.
It’s best to keep it if you are unsure
It’s easy to accumulate a mountain of paperwork (physical or digital) from years of filing tax returns. If you’re unsure whether you should retain a document, a good rule of thumb is to hold on to it for at least six years or, for property-related records, at least seven years after you dispose of the property. But, again, you should keep tax returns themselves permanently.
Our advice is: Don’t go it alone. Please contact Nick Leacoma, CPA, Ciuni & Panichi, Inc. Tax Department Senior Manager at 216-831-7171 or by email here for sound business advice on a variety of business issues.
© 2018
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