What Records to Keep and How Long to Keep Them
If your desk is filled with random files, and you basically have no organizing system at all, this article is definitely the right one for you. In this article, I am going to help you clean out your desk and get your records organized. There might be files that you’ll need in there, while some, not so much. You don’t need a random piece of paper with a note to yourself to refill the water cooler at the office. Let’s get that desk organized with the important papers.
Why keep records?
It is very important to keep records of everything in your company. Every business should keep records. According to the IRS, good recordkeeping will help you:
Monitor the progress of your business
Prepare your financial statements
Identify sources of your income
Keep track of your deductible expenses
Prepare your tax returns
Support items reported on your tax returns
Let’s discuss this, shall we?
Monitor the progress of your business
Keeping records can make your business more likely to succeed. This is because your records will be able to show you whether your business is growing, improving, or failing, and what changes need to be made.
Watch Mike Hosted discuss how small trucking businesses grow, succeed and stay compliant with the IRS.
Prepare your financial statements
Preparing accurate financial statements, such as an income statement and a balance statement can help you with dealing with your bank or creditors managing your business. You would need to include losses and profit statements and balance sheets. The income statement would show the expenses and income of the business during a specific period of time. The balance sheet would show the assets, liabilities, and equity on a given date in the business.
Identify sources of your income
Your records can identify the many different sources of money or property of your income. It will split up which receipts are from businesses and which are not. They will also split up what income is taxable, and what is non-taxable.
Watch Tim Higham talk more about TMS systems and managing analytics to help you run your business.
Keep track of your deductible expenses
When it comes to preparing your tax return you may have forgotten your expenses unless you record them when they occur.
Prepare your tax returns
To prepare your tax returns you will need to have good records these are the same records that you would use to monitor your businesses and prepare your financial statement. The records you will need must support the income, expenses, and credits you report.
Support items reported on your tax returns
If the IRS inspects your tax returns they might ask you to explain the items that are on the report. Having your business records kept well organized will make the examination go faster.
What kind of records to keep?
Some records that the IRS said are important to keep would be supporting documents such as gross receipts, purchases, expenses, and assets. These documents are important because they contain information that will be used for a tax return.
Gross receipts:
Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents for gross receipts include the following: Invoices, Forms 1099-MISC, deposit information, and receipt books.
Employment taxes:
Specific employment tax records you must keep for many years. For more information go to Recordkeeping for Employers and Publication 15, Circular E Employers Tax Guide.
Expenses and Purchases:
Purchases and expenses such as anything for the business that is needed for the company and things for the employees. The documents that you would need should identify the payee, the amount paid, proof of payment, the date incurred, and include a description of the item to show that the amount was for purchases. Canceled checks or other documents reflection proof of payment/electronic funds transferred, cash or credit card receipts, and invoices.
Assets:
Property, machinery, furniture that the business company owns and uses. You need to keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets.
When and how you acquired the assets, purchase price, cost of any improvements, section 179 deduction taken, deductions taken for depreciation, deductions taken for casualty losses, how you used the assest, expenses of sale.
How long should you keep the records?
1. According to the IRS, you need to keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. You should keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. If you do not report income that you should report, and it is more than 25% of the gross income shown on your return keep the records for 6 years.
5. Indefinitely keep records if you do not file a return.
6. If you file a fraudulent return, keep records indefinitely.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Tips on how to keep records:
Save every receipt even if you think it’s insignificant.
Open a separate checking account for your business.
Use a separate credit card for business expenses.
Save all your logbooks.
Keep a notebook in your truck.
Use an accounting system.
Update your books daily.
Review your money frequently.
Make sure your books are audit-proof.
Bottom Line:
Don’t keep piling up your desk full of papers. Keep the documents that are needed and get a better-organized system so you will not be scrambling for a missing document in a rushed time schedule. Records are very important to keep and the length of time you need to keep them makes things somewhat difficult. If you use the tips above, your company should be in good shape when it comes to keeping records. To learn more about how you can bookkeep, you can check out this article.
Before working at Superior Trucking Payroll Service she worked in IT at GVSU which gave her the skills to problem-solve with customers over the phone.
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