Good tax record keeping may be the most important record keeping you do for your company.
You don’t want tax time to roll around and have to panic because your company doesn’t have its tax records in order. Tax records in disarray can cost you deductions—and if you happen to be audited, could create a problem costing you money.
After all, you want to get all the deductions you can and be able to back them up.
The IRS requires you to keep the last three years that you’ve filed. In January 2017, that means you’ll need to have records from 2014, 2015 and 2016. But I’m a believer that if a pinch of salt is good, then two is better. If the IRS requires you to keep three years of records, five years would be better. And if you keep those receipts for seven years, you’re never going to have any regrets.
Why would you need to keep records for longer than the required three years? It’s possible that in the fourth or fifth year after the initial purchase, you may pay off a vehicle or make an upgrade to a copy machine. If you do, it would be helpful to be able to reference those receipts for the current year’s deductions.
Once you’ve decided how long you will keep company records for tax purposes, you’ll need to set up a safe and organized system for storing them.
I organize my receipts by month. I put all my receipts for each month in a manila envelope, then file it in a box. After we file our taxes, I stick that box up in the attic with the year clearly labeled. When seven years have gone by, I shred the oldest year of tax receipts. Don’t forget—you never want to throw those kinds of receipts in the trash. It’s important to destroy them.
If you need help navigating the complexities of document management for tax purposes, let’s talk. Give us a call so we can chat about your needs.