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How Shop Owners Can Know How Long to Keep Tax Information
We’ve talked about how important accurate and timely financial records are, but these are also critical if you ever get audited or sued.
These financial records are also an IRS requirement.
Let’s take a look at which records you’re required to keep, how long you should keep them and to make sure you don’t loose them.
A general rule is to keep tax records and receipts for three years, but keep some records for a longer length of time.
Here’s a list (Record Type/How Long to Keep it) that breaks this down for you:
Past tax returns…3 years
Receipts…3 years
Miscellaneous financial records…3 years
Employment tax records…4 years
If you omitted income from your tax return, keep records for…6 years
If you deducted the cost of bad dept or worthless securities, keep records for…7 yearsHere are some ideas for which documents you should keep and how to keep from loosing them.
Always keep:
Receipts
Bank statements
Invoices
Payroll records
Any other documents that support
An item of income
Deduction or
Credit shown on your tax return.Expenses less than $75 or that have to do with transportation, lodging or meal expenses might not need a receipt. You still have to be able to tell the IRS where and when the expense happened, and what the deduction was for. A idea is to keep a diary of all these expenses.
If you don’t need a document for tax purposes, you may need it for something else. When it doubt, keep it.
The most efficient and secure method is to store everything electronically, and always, always make backups. These can go into an electronic filing cabinet.
The IRS will never take you word on the income, deductions, and credits claimed on your tax return. They require you to keep documentation to show all these areas on your return.
Here are the main types of records you should hang on to:
Receipts
Cash register tapes
Deposit information (cash and credit sales)
Invoices
Canceled checks or other proof of payment/electronic funds transferred
Credit card receipts
Bank statements
Petty cash slips for small cash payments
Accounts payable and receivable
Payroll records
Tax filings
Previous tax returns
W2 and 1099 forms
Any other documents that support an item of income, deduction, or credit shown on your tax returnThere are some records, that you may not need to do your taxes, but should always be on file:
Any contracts you’ve signed (with clients, vendors, contractors, employees, etc.)
Articles of incorporation
Business permits
Company health, safety, and any other regulatory documents
Annual reportsRemember, you have to prove that every item on your tax return is valid. Do this by producing the documentation outlined above. So, the moral of this story is…
Work with your bookkeeper and keep as many records of what goes on in your repair shop as you can.
There are exceptions to what you read above. For more information to add clarity to your specific situation, have a conversation with your bookkeeper. She knows where the money came from, where it is, and where it went.
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