Bookkeeping

But in the real world, it’s important to hold on to tax documents for at least a few years, and maybe longer. First, why do you have to keep tax records at all? Once tax season is over, you might not even want to think about taxes — let alone deal with tax forms — for another year. What do you do with all the tax forms — whether paper or digital — when tax season ends? We think it’s important for you to understand how we make money.

If there’s ever any doubt about whether you should keep a document, keep it. You’ll thank yourself the next time you do your taxes or get audited. In this guide, we’ll walk you through which records you’re legally required to keep, how long you should keep them, and how to make sure you don’t lose them. Michael Keenan is a writer based in the Kansas City area, specializing in personal finance, taxation, and business topics. He has been writing since 2009 and has been published by Quicken, TurboTax and The Motley Fool.

How Long Should You Keep Business Asset Records?

In some cases, you may need to hang onto your records longer than three years. For instance, you should plan on keeping tax forms forretirement accounts such as IRAs until seven years after the account is completely wiped out. If you file a claim for a loss of worthless securities or bad debt deduction, you must keep records for seven years. Additionally, if you amortize, depreciate, or buy or sell property, you should keep property records until the statute of limitations expires for the year in which you dispose of the property. Remember, property isn’t just land or buildings; it includes stock, office equipment and other assets. If the IRS finds a substantial error in your current return, they could go back six years into your tax history to investigate. However, you might want to keep your returns for even longer than that.

Worthless securities apply to shares of stock, stock rights, or evidence of debt issued by a corporation. Stock may become completely worthless, creating worthless security. Or, businesses can abandon their securities by permanently surrendering them and giving up all their rights. Treat worthless securities like capital assets sold or exchanged effective the last day of the tax year. A bad business debt is one a company incurs while operating as part of the taxpayer’s business or trade. The business can then deduct the bad business debt from ordinary income instead of treating it as a capital loss. Companies must report it as a deduction on tax returns.

How to keep your tax records

H&R Block does not provide audit, attest or public accounting services and therefore is not registered with the board of accountancy of the State in which the tax professional prepares returns. H&R Block tax software and online prices are ultimately determined at the time of print or e-file. All prices are subject to change without notice. Most brokerages will compute your cost basis for stocks, bonds and mutual funds, although they are only to calculate your cost basis for stock transactions since 2011 and mutual funds since 2012. It’s a good idea to keep all your transaction records, however, in case you change brokers.

Insurance companies or creditors often ask you to keep files longer than the IRS requires. When in doubt, play it safe and keep the records. The period of limitations is the time in which you can amend your tax return to claim a credit or refund, or the time in which the IRS can assess additional tax. If you use a CPA, don’t rely on your accountant to keep records for you. Taxpayers should also maintain copies of tax returns and related documents themselves, Curtis says. Having copies of important tax records — as well as your past returns — can help you cope with an IRS audit or letter and ensure you’re equipped to file an amended return if you need to.

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There are two reasons you may need to keep your tax records for at least three years. First, you must keep your records for at least three years if you file a claim for a tax credit or refund after you file your return. If that sounds familiar, it’s because it goes hand in hand with the two years of tax recordkeeping. So, how long do you need to keep tax returns for your business? According to the IRS, there are different amounts of time for recordkeeping for tax purposes. How long to keep tax records can depend on what you need to keep them for. Publication 583, Starting a Business and Keeping Records, details how long you should keep different records.

Keep your records organized—I recommend arranging them by year—and store them in a safe place. If the IRS comes calling, you must be able to promptly produce legible records. Secure cloud storage services like Dropbox, Evernote, or Google Drive. If you’re still not sure about which small receipts to keep, you can https://turbo-tax.org/ review the IRS guidelines on proving expenses under $75 here. If you’re deducting meals and entertainment, it’s even more complicated. You might have to submit a list all of the people who were there with you when the expense occurred, and what you talked about (really—the IRS wants to know if you talked shop).

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Sometimes your stock picks don’t turn out so well, or you loan money to your deadbeat brother-in-law who can’t pay you back. If that’s the case, you might be able to write off any your worthless securities or bad debts. But make sure you keep related records and documents for at least seven years. That’s how much time you have to claim a bad debt deduction or a loss from worthless securities. Creating different retention policies for each possible scenario may prove impractical. Retaining tax returns and other records for seven years—starting from the later of the filing date and due date of the related tax return—offers a convenient rule of thumb. This covers almost all documents for businesses that file all required tax returns without fraud.

• For example, your W-2 form will summarize how much you’ve earned, so you do not need to file away every single pay stub.
• Always keep receipts, bank statements, invoices, payroll records, and any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return.
• I recommend that you have a list of phone numbers of close friends and relatives, and key medical doctors.
• Even if your records are no longer needed for tax purposes, you may want to verify that the documents aren’t needed for other important financial institutions.
• A passport that doesn’t have a date of entry won’t be accepted as a stand-alone identification document for dependents.
• Even businesses that entrust their records to a certified tax professional need to keep copies.

Requirements and laws for retaining records on employees who are injured in the workplace vary by state, and you should check with the responsible state agency for guidelines on keeping these records. On the federal level, the Occupational Health and Safety Administration requires businesses to retain records on workplace injuries for five years. Make it a priority to locate your important documents, store them safely, shred what you don’t need and tell someone you trust how to access them in an emergency. When the need to access this information arises, you’ll be glad you took the time to safeguard yourself. Your accountant, attorney, broker and financial advisor will generally store important document paperwork on file for you electronically.

Insights & advice

Free ITIN application services available only at participating H&R Block offices, and applies only when completing an original federal tax return . H&R Block online tax preparation and Tax Pro Review prices are ultimately determined at the time of print or e-file. Similarly, if you’ve sold a home, you’ll need records that prove what you Learn How Long To Keep Tax Records paid and what you received from its sale. And if you’ve sold a rental property, you’ll need detailed records of the amount you’ve invested in the property over the years, as well as how much you deducted for depreciation. It’s wise to keep Schedule E, the form you fill out every year for rental income, as long as you own the property.

If you need help handling an estate, we’re here to help. Learn how to file taxes for a deceased loved one with H&R Block. At H&R Block, we’ve been helping people with taxes for over 60 years.

Property records can be forever

The IRS recommends keeping records three to seven years after filing your taxes, but some experts say that might not be long enough in some situations. Here’s some information that will help you decide. Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property. But you need that paperwork if you need to prove you deserve the tax deductions you took, to file an insurance claim, or to figure out if your busted oven is still under warranty. You might also have leases for your business premises, insurance policies, and business loan records, among other documents.

Additionally, owners can use this information to better understand their businesses. In some circumstances, the statute of limitations is longer than three years. For example, if you don’t report income that you’re required to report, and it exceeds 25% of the income shown on that year’s tax return, the IRS has six years to audit your return. You’ll need to keep your records for seven years if you claim a deduction of worthless securities or bad debts.

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