Do you find it harder and harder to keep your filing cabinet organized? Most small businesses do. This is completely understandable since you need to keep track of tons of paperwork, from employee records, business licenses, and various receipts, among many others.
But the most difficult records to manage include your business’s tax papers and their supporting documents. Fortunately, storing your tax records properly comes down to the following guidelines.
How Long to Keep Your Small Business’s Tax Paperwork
The most important thing to remember is that the IRS could still audit your small business’s returns for as much as seven years following your filing in the event that it suspects that you made inaccurate filings or used bad debt for claiming deductions.
Likewise, the time allotted to amend a return is within three years after its filing. This means that your best bet is to keep your small business’s tax returns, including their supporting paperwork, for seven years, minimum, or longer if possible.
Tax Papers and Supporting Documents You Should Keep
It’s no secret that the tax rules regarding financial records change almost every year, so it’s recommended that you consult with your accountant or financial advisor for specifics. With that said, below you’ll find information to help you understand the general requirements to determine which papers you need to keep.
To start, you should keep tabs on the following documents, literally, by printing out, filing, and storing them every single year:
- Form 1040: You should likewise include and keep supporting paperwork for your form 1040 for at least three years.
- Employee Records: To be safe, store all payroll reports, employee records, and other supporting paperwork for at least seven years.
- Schedule K-1: If you file as a Partnership or S-Corp, you must keep your schedule K-1 documents for at least six years as proof of your partnership shares.
- Partnership Agreements: You should maintain and keep all LLC partnership or partnership agreements, as well as their amendments, in hard physical copies for the life of the agreement.
- Required Business Licenses: These include hard copies of local and state licenses required for your small business to operate.
- Form 2552 and S-Corp Acceptance Letters: Maintain copies of these forms and letters indefinitely.
Tax Documents You Can Store Electronically
Not all tax business records need to have a paper trail, so you can just keep and maintain these records on the cloud or a dedicated server:
- Transaction Statements: Credit card, bank, and similar statements are backup records to almost all your small business’s payables. With this in mind, electronic or paper transaction statements must be stored and filed for three years at least, following their filing. And please remember to separate your business and personal transaction statements. Your transaction statements for your singing or voice lessons or personal travel accommodations, for example, don’t belong here.
- Legal Agreements: Legally binding paperwork or contracts must be stored for as long as they’re valid, and for several years after, just in case you need to revisit them.
- State and Federal Tax Filings: Maintain electronic records of these for at least three years or more if your small business has previous inaccurate filings, employees, or owns the property.
Crucial Points to Remember
When choosing a cloud-based or electronic storage option for tax records you need to keep, do your homework first. Research the platform’s security processes they use for protecting records and recovering data in case of a security breach.
Now that you’re done organizing your small business’s tax documentation and know which records to keep and get rid of, all that’s left is to make and implement a plan for storing and filing them and pray that you’ll have everything you need in case of an audit.