Record Retention Guide

How long should record be kept?

Just how long you should keep records is partly a matter of judgement and a combination of state and federal statutes of limitations. Federal returns can be audited for up to three years after filing (six years if underreported income is involved), so all records substantiating tax deductions should be kept at least that long

Here are recommended retention periods for various records:
 
RecordsRetention Period
Cancelled checks7 years
Credit card receipts7 years
Paid invoices7 years
Bank deposit slips7 years
Bank statements7 years
Tax returns (uncomplicated)7 years
Tax Returns (all others)Permanent
Employment tax returns7 years
Expense records7 years
Financial statementsPermanent
ContractsPermanent
Minutes of meetingsLife of company plus 7 years
Corporate stock recordsPermanent
Employee recordsPeriod of employment plus 7 years
Depreciation schedulesLife of assets plus 7 years
Real estate recordsOwnership period plus 7 years
Journal & general ledgerLife of business plus 7 years
Inventory records7 years
Home purchase and improvement recordsOwnership period plus 7 years
Investment recordsOwnership period plus 7 years
 

Recordkeeping for Businesses

The tax law requires all businesses to keep records to support the gross income, deductions, and credits claimed on their income tax returns.

What records? All businesses should have a permanent set of books which summarize individual deposts, disbursements, and items of adjustment. These records should be retained indefinitely. Permanent records also include those needed to prove the basis (cost) of depreciable assets.

Supporting documents may be needed to validate the journal entries if you returns are examined by the IRS. The general rule is that supporting documents should be retained at least until the statute of limitations for a tax year has passed.
The supporting documents the IRS reviews include bank statements, cancelled checks, payroll records, invoices, and the like. You should also retain documents supporting deposits whish do not reflect income, such as loan documents. If storage is a problem, consider scanning these documents.

What happens if your records are inadequate? If you fail to retain adequate records to support the items claimed on your returns, the IRS has authority to reconstruct your income using one of several methods, including estimating increased net worth, looking at bank records, or estimating the raw materials used in manufacturing. Whatever method the IRS uses, you have the burden of proof if you dispute thei estimate. Without adequate records, proving the IRS estimates wrong is difficult, at best. You could end up with an assessment for additional taxes, plus penalities and interest.
 
 
 
 
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History

Luis C. Pacheco commenced operations of Accounting Portfolios as a sole proprietor in June 1991 and incorporated in 1995. Over the years, the firm of Accounting Portfolios Inc. has grown steadily and rapidly, and now has a professional staff to service a continuously growing clientele. Today, with active practices in accounting, payroll, tax, financial services, and small business consulting, Accounting Portfolios, Inc. has evolved into a dynamic firm offering customized and effective business solutions.
 
 
Contact us to learn more about our accounting and bookkeeping services for small businesses.
 
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