Record keeping Requirements for Business

What records should your business keep, and how long should you keep them? There are several categories of records that are important to a business, some for internal purposes and some for tax returns and other government requirements. Let’s take a look at these by category.

Tax records. First, consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records, so support the items of income and expense that you claim. That means you must be able to produce receipts, invoices, cancelled checks, or banking records supporting expense items. Similarly, you should keep sales slips, invoices,or bank records to support income items.

Accounting records. Most businesses have adequate accounting systems to capture routine transactions, but not for non-routine transactions such as the purchase of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.

Travel and entertainment expenses. Good record keeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help insure that your records contain all the required information. Also, if you have employees who drive on company business, make sure they keep an auto log showing the miles driven for each trip.

IRS audits. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or seven years after the tax year). For that reason, you should keep most income tax records for seven years. The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.

Sales and Use Tax. State taxing authorities are focusing their audit activities by targeting small businesses sales and use tax. Keep invoices and reports showing your sales tax amounts and tie them to your sales and use tax filings. More importantly, keep records showing all your purchases and sales/use tax reporting. Include details behind any corporate credit card payments to defend the payment of sales and use taxes.

Corporate records. Every incorporated business needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also keep copies of all contracts and leases. Finally, don’t forget current and terminated employee files, and records of employee pension or profit sharing plans. Most corporate and employee pension plan records should be kept indefinitely.

Computer record keeping.The IRS has established a series of rules and recommendations concerning how electronic records must be maintained. Generally, such records should contain the same information as paper records and should be kept for the same length of time.

When it comes to your business, it’s better to be safe than sorry when it comes to your record keeping. If you have questions or need assistance with your businesses’ tax records, accounting records and audits, don’t hesitate to contact our team. We’re here to help: https://www.bas-pc.com/appointment-center/