Business Records Retention

Business records retention is imperative to your small business.

If you’re a small business owner, you can choose any record-keeping system that works for you as long as it clearly shows your income and expenses.

You can keep your accounting on paper, in spreadsheets, or in an accounting program.

Whichever method you choose…you must have supporting documents to back up your accounting reports.

Business Records Retention Tips: How to organize and store your business records…

Each small business is unique…so how you organize and store your supporting documents should be personalized to suit your needs.

Keep all supporting documents in a safe place. You can save receipts in files labeled monthly or by categories. Again the size and uniqueness of your business determines how to set up your filing system for your business records retention.

Here are a few categories you might use:

  • auto expenses
  • rent
  • utilities
  • professional fees
  • office supplies
  • advertising
  • travel
  • entertainment

For those of you with very small businesses with smaller amounts of supporting documents, you may want to keep your records in an accordion file or file tote.

Another option is keeping them in a binder with divider pages with tabs. You can keep the supporting documents in clear plastic sleeves.

The important thing is to KEEP them…don’t wait till tax time to try to round up what receipts you can find. Make a habit of filing your supporting documents immediately or as soon as you can.

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Business Records Retention: Type of Records…

Here are some examples of the type of records you should be keeping:

Gross Receipts: the income you receive from your business.

You should keep supporting documents that show the amounts and sources of your gross receipts.

Examples of these documents are:

  • 1099-Misc
  • Cash register tapes
  • Invoices
  • Bank deposit slips
  • Credit card charge slips
  • Receipt books

Purchases: the items you buy and resell to your customers.

If you are a manufacturer or producer, this includes the cost of raw materials or parts purchased to make your product.

You should keep supporting documents that show the amounts paid and that the amount was for purchases.

Examples of these documents are:

  • Canceled checks
  • Cash register tape receipts
  • Credit card sales slips
  • Invoices

Expenses: the costs(other than purchases) you incur to run your business.

You should keep supporting documents that show the amounts paid and that the amount was for a business expense.

Examples of these documents are:

  • Canceled checks
  • Cash register tape receipts
  • Credit card sales slips
  • Account statements
  • Invoices
  • Petty cash slips for small cash payments

Travel, Transportation, Entertainment, and Gift Expenses: If you deduct these types of expenses, you must be able to prove them.

So business records retention is imperative with these supporting documents:

  • Mileage Log
  • Lodging receipts
  • Tolls and parking receipts

*Refer to IRS Pub 463 for a listing of more supporting documents

Assets: the property you own to run your business.

You must keep supporting documents that verify certain information about your business assets.

Examples of these documents are:

  • When and how you acquired the assets.
  • Purchase price
  • Cost of any improvements.
  • Section 179 deduction taken.
  • Deductions taken for depreciation.
  • Deductions taken for casualty losses, such as losses resulting from fires or storms.
  • How you used the asset.
  • When and how you disposed of the asset.
  • Selling price.
  • Expenses of sale.

The following documents may show this information.

  • Purchase and sales invoices.
  • Real estate closing statements.
  • Canceled checks.

Employment taxes: Keep all records of employment and employment taxes for at least 4 years.

Records should include:

  • Your employer identification number.
  • Amounts and dates of all wage, annuity, and pension payments.
  • Amounts of tips reported.
  • The fair market value of in-kind wages paid.
  • Names, addresses, social security numbers, and occupations of employees and recipients.
  • Any employee copies of Form W-2 that were returned to you as undeliverable.
  • Dates of employment.
  • Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.
  • Copies of employees’ and recipients’ income tax withholding allowance certificates (Forms
  • W-4, W-4P, W-4S, and W-4V).
  • Dates and amounts of tax deposits you made.
  • Copies of returns filed.

Business Records Retention: How long you should keep supporting documents…

Generally you should keep documents that support your reported income and expenses on your tax return until the period of limitations for that 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 that the IRS can assess additional tax.

  • For most people this is three years after the due date for that return.
  • If you filed a fraudulent return or if you don’t file at all, keep your records indefinitely.
  • Keep all payroll and payroll tax records for at least four years.
  • Keep records relating to your assets for three years after you dispose or sell the property.

Last of all…before you toss those records…make sure you don’t need them for any other purposes. For example, your insurance company or creditors may require you to keep records longer than the IRS does.

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