Small Business Filing and Recordkeeping Requirements

Keep I-9s for all employees in a secure, separate file in case of a review by the USCIS. That trail of performance appraisals and progressive discipline prepares the employee and backs your decision in case the terminated employee complains. HR software can collect this information and even crunch the numbers and run reports for you. Then you can work proactively as your own watchdog, checking for unintentional bias and fine-tuning your recruiting and hiring practices. As an independent organization within the IRS, the Taxpayer Advocate Service helps taxpayers resolve problems and recommends changes that will prevent problems.

These include original birth and death certificates, Social Security cards, passports, life insurance documents, and marriage and divorce decrees. As a small business, you may have many different types of returns that are due, and many different types of deductions. As a busy small business owner, it’s important to put a user-friendly recordkeeping system in place. In the U.S., the Equal Employment Opportunity Commission (EEOC) enforces several federal anti-discrimination laws for employers that apply to recordkeeping and hiring.

The Importance of Keeping Business Records

Because asset values can depreciate over time, your records will help an auditor or tax professional calculate the asset’s depreciation, amortization, or depletion deductions. They can also help them assess the gains or losses realized from the sale or disposal of the property. Records may include deeds, titles, or documents showing an asset’s purchase date and price, use, and sales date and price.

By learning what needs to stay and what’s free to go, you can minimize the amount of materials you accumulate over time. In addition to your tax filing documents, your business will also accumulate a lot of data about your employees. Some of these business records will directly impact your tax return, while others are simply a matter of maintaining clear records of your business operations.

Where to keep your records, for how long and how to request the permission to destroy them early

But unless you’re auditioning to appear on an episode of Hoarders, you should probably go paperless and store everything electronically. Say you dispose of a property by selling it during the 2018 tax year, report the financial gain on your 2020 tax return, and file your tax return right on the tax deadline of April 17, 2021. That means you’d need to keep records connected to the property until April 17, 2024 (i.e. three years after the filing date of April 17, 2021). The IRS might have a question about business expenses on your income tax return, so you’ll want to be able to prove the purchase was business-related.

For example, if your company is subject to the Age Discrimination in Employment Act (ADEA), you’ll need to keep information on applicants for one year. As tempting as it may be to toss everything once the IRS says you don’t need to keep it, you might want to think twice. Your insurance company or creditors may require that you hold onto things for a little longer. If you have an expense that is less than $75, you don’t need to have a receipt to support it. You also don’t need to keep documentation if it’s for a transportation expense and documentation isn’t easy to get. And if you have meals and lodging expenses that you report under an accountable plan for a per-diem allowance, you won’t need to keep your receipts.

TAS Tax Tip: Small Business Filing and Recordkeeping Requirements

When you start your business, you should set up a business checking account. For most businesses, this is going to be the primary source for information related to your income and expenses. Each transaction in your business bank how long to keep business records account should have more evidence to support it. Remember, the burden of proof for everything on your tax return is on you. It’s your responsibility to be able to prove the expenses that you deduct with adequate records.

Keeping all of your documents on your computer isn’t very efficient and can bog down your system. Other digital storage options include external hard drives, like HDDs and SDDs, which are compact solutions for storing massive amounts of electronic data. An even more compact solution is storing electronic paperwork on a flash drive, although flash drives also are easier to misplace or damage.

It’s important to document an employee’s record of employment, beginning all the way back to the recruiting and hiring process. Many employers are surprised to learn that they must keep records of job applicants as well as hires in case of a discrimination complaint. With many employee forms migrating to electronic document systems, it’s more important than ever to have a plan for filing, retaining, and storing employee documents. In some states, current and former employees have the right to see their personnel files. Employees ink a lot of paperwork when they’re hired, and the flow of documents continues throughout their tenure with your company.

Plus, let’s not forget that paper records can fade, and are susceptible to damage. Telling the IRS that “the dog ate my tax records” simply won’t fly. This is mainly due to the Period of Limitations, which is the time during which you can amend your tax return, or during which the IRS can perform an audit on your return.