Many small businesses are overwhelmed with paperwork. Yes, we supposedly operate in a paperless society, but somehow our desks continue to get overrun with paperwork. How do you determine what to keep and what to throw out? How do you organize it? And where do you store all this?
Create a Document Retention Plan
For small businesses, proper document retention is critical for several reasons. Keeping a handle on the filing of mission-critical paperwork not only tidies up the office, but it can keep you out of hot water with the IRS or other government entities, as well. Having a clear, logical document retention plan in place can save you hours of searching — not to mention stress — if you have to produce a document for a specific purpose.
Keeping track of relevant documents is also a good idea when they support other business decisions. Tax deductions, tax payments, and tax credits all have supporting documents that need to be retained. What if you decide to sell your business? You’ll need to produce tax documents, financial statements, bank statements, and a whole host of other information for the new owner. Payroll documents should be kept for a minimum of three years, according to the Fair Labor Standards Act, and any documents used to determine the rate of pay for your employees must be kept for a minimum of two years.
Getting It All Organized
All of this adds up. The best way to keep track of all your important papers is by using a document storage facility. There are several out there, but they’re not all created equal. Make sure you choose one that has an organized filing system and a secure location (secure from theft and natural disaster). Also, choose one that guarantees that they can retrieve your documents when you need them. If the IRS wants to see your tax return from three years ago, you need to be able to access it within the requested time frame.
Retention Schedule for Tax Documents
To get you started on taming that mountain of paperwork, here are a few tips from the IRS for document retention for small businesses.
- Keep tax records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later if your request for a credit or a refund was not sent in with your tax return.
- Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep records for six years if you don’t report income that should be reported, and the amount is more than 25% of the gross income shown on your return.
- Keep records indefinitely if you don’t file a tax return.
- Keep employment tax records for a minimum of four years after the date that the tax becomes due or is paid, whichever is later.
There are many nuances when it comes to tax-related document retention. If you have any questions about how long you need to keep your tax documents, give Adams Accounting Solutions a call. We’ll help you sort it all out.
