Mistake to Avoid – Not Keeping the Right Tax Information
A common problem faced by many business owners is knowing exactly what type of records must be kept and for how long. The result is often boxes of papers that accumulate and take up space.
Here are some general guidelines on what to retain:
- Keep federal and state tax returns forever.
- Keep the records that support numbers in those tax returns until the statute of limitations has expired. This is usually three years from when the return was filed, but there is no limit for fraudulent tax returns.
- Keep annual financial statements forever. Monthly or quarterly statements can be discarded when they are no longer needed, but three years is a good rule of thumb.
- Records for equipment that you own should be kept for as long as the equipment’s depreciation is reported on the company’s tax return. Records for leased equipment are like other tax supporting documents.
- Keep insurance policies for as long as they are in effect, plus any extra time when there may be a claim made under the policy. Also, keep records of any claims made.
- Payroll records must be kept for at least four years after any withholding and when Social Security or unemployment tax is due or paid. Most advisors suggest that employee financial information be kept for a long time.
- Corporate papers, such as articles of incorporation, board minutes/resolutions, and ownership records should be kept forever.
- General ledgers should be kept forever.
For items not covered above, consider six years to be a good time frame unless the records have a continuing legal nature. Then keep them forever.