Know When To Hold Them, Know
When To Toss Them
Collecting, collating and
storing business and tax records can often be time consuming and tedious.
Still, it’s an important task, one that you shouldn’t ignore or
postpone. Easily accessible, organized records can help simplify and
streamline numerous aspects of your business dealings and can prove
invaluable when disputes arise.
Overview
Detailed records can help you handle audits or challenges from the IRS and
state tax departments. During audits, the IRS may question certain
deductions or credits your contracting firm has claimed. Producing the
relevant paperwork that substantiates any deductions and credits you claimed
is often all it takes to satisfy an IRS challenge.
In addition, good records can help your business in a variety of other
situations. Employees or the Department of Labor could sue over disputed
hourly rates or overtime payments. Other employees may charge discrimination
relating to hiring and firing practices. Clearly, accurate and complete
records can make the difference between winning and losing a dispute.
Federal acquisition regulations require contracting firms that participate
in federal government contracts to retain various records for specific time
periods. Details regarding these requirements are available online at
www.acquisition.gov/far. In addition, OSHA, the IRS and various state and
local building departments have a number of requirements regarding the
retention of records. And don’t forget that record retention requirements
often are built into contracts.
IRS Requirements
The IRS says that generally you must keep your records that support an item
of income or deduction on a tax return until the period of limitations for
that return runs out. The period of limitations is the period of time in
which you can amend a tax return to claim a credit or refund, or that the
IRS can assess additional tax. Years referenced below relate to the period
after the return was filed. Returns filed before the due date are treated as
filed on the due date. The periods of limitations that apply to income tax
returns are:
-
You owe additional tax and situations (2), (3) and (4) do not apply to you; keep records for three years.
-
You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for six years.
-
You file a fraudulent return; keep records indefinitely.
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You do not file a return; keep records indefinitely.
-
You file a claim for credit or refund after you file your return; keep 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.
-
You file a claim for a loss from worthless securities or a bad debt deduction; keep records for seven years.
-
Keep all employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.
Permanent Records
You will want to retain certain business records in permanent files. These
include:
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Articles of incorporation
-
Stock records and corporate minutes
-
Deeds and mortgages
-
Depreciation schedules
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Financial statements and audit reports
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General ledger and year-end trial balances
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Licenses and permits
-
Copies of filed tax returns
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Tax and legal correspondence
-
Contracts and leases
-
Insurance records
Other Records
It’s generally a good idea to keep certain financial records for at least
seven years (unless a longer retention period is required). These include:
-
Sales records
-
Expense reports
-
Automobile logs
-
Purchase orders
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Customer and vendor invoices
-
Bank statements
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Accounts payable records
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Accounts receivable records
-
Payroll records
You may be able to discard certain other items. Ask us for details. And remember, these are general rules of thumb. Check with the necessary government agencies and your attorney to determine the legal requirements that may apply to your firm’s business.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
