The ATO relies on self-assessing for filing returns. This means you are completly responsible for what you file and claim for deductions. Therefore, it is essential for every business and individual to make a complete record of all the required details before and after filling tax returns. These documents help you to come out of any situtation when an officer asks for compulsive auditing. You can also take assistance from professional accounting firms like tax return accountant gold coast to prepare taxes and filing returns.
Before discussing the tenure of keeping records safely, let’s why it is crucial to keep records safely:
- To have written confirmation of income and expenses details.
- To assistant tax agent like tax return accountant gold coast for preparing taxes
- To claim all benefits entitled to savings.
- Less need to look for auditing and adjustments
- Better communication with ATO
- Avoid penalties
Records keeping helps you to manage records effectively and helps you to file returns on time. Let’s focus on the main question:
How long a business can keep records?
Normally, the tax records are kept for three years, but cases require longer tenure, let’s know all cases:
- 3 years tenure records – This period is required to save Past tax returns, Receipts, and Miscellaneous financial records. Because at this time IRS performs auditing on your returns. So, there can be case when they can demand a particular document. But once the limitation of the period is over, you will not liable to keep records of supporting documents beyond the period.
- 4 years tenure records – For every business, it is essential to keep employment tax records for the next four years after the payroll becomes due or paid.
- 6 years tenure records – If some income is omitted and contains 25% of the gross income. It is essential to keep those records for the next six years. This date must be six years after you file a return or due date (whichever is later).
- 7 years tenure records – If you deducted bad debts cost or other securities cost, keep records for the next seven years
- No time limit for fraudulent Taxation – If you either do not file the return of file a wrong return. There is no way to escape from the IRS. You have no time limit.
7 Rules To Keep Small Business Records
- Always keep your income receipts, invoices, payrolls, bank statements and other supporting documents representing the credit figures in your accounts.
- Three years all document records are essential to support your figures.
- Four years of employment tax record is a must-have document.
- If some income is omitted keep records with you for the next six years.
- Bad debts and other worthless securities deduction records are important for the next seven years.
- Some receipts like transportation(if less than $75), mean or other lodging expenses are not required.
- You can go paperless and take a backup of all transactions till the time these are required time.
Essential Receipt Records For Tax Calculation
IRS always require to keep all receipts related to income, expenditures and other deductions in your hand. Here we have a list of major details:
- Taped cash registers
- All cash and credit information
- All receipts
- Bank statements
- Payroll records
- Accounts payable and receivable
- Credit card receipts
- Past and present tax filing details
- W2 and 1099 forms
- Other documents supporting income, expenses, deductions or there claims
- All the above documents must be signed by the client, vendor, employee or other contractors.
- Business must have articles of incorporation
- Business license
- Company safety, health, and other concerned documents.
- Annual report
As the burden to prove documents lies on the taxpayer, therefore, its your liability to keep all records safe and as per prescribed time. Also, do not forget to make a record file of every receipt and add all related invoices as per the folder name.
Is there any list of documents that are not required?
It is hard to keep every single receipt. There can be chances to misplace or lost some receipts. But you can still claim for those under $75 receipts. Normally, there are three reasons to not having these receipts:
- Expenses related to transportation fares and less than $75.
- Expenses paid for meals. or
- Expenses paid on lodging
If you have records connected to the property
Normally, three years’ tenure is required to avail deduction which are related to property loss, sale or depreciation. Beyond that, you don’t require to keep records and claim deductions. These records include deeds, titles, and receipt of buying like computers or vehicles buying receipts.
Do I need to hold paper bank statements?
Its a straight “NO” if you are availing internet banking. An electronic copy can also be considered evidence of banking statements. But keep always three years records in hand.
What is the easiest way to keep records?
IRS does not recommend any specific record-keeping system. As you can use any system that can accurately define income and expenses statements. But, if you want to save paper you can choose electrically devices suggested by accountants or accounting firms.
IRS also accept digital copies of documents that look similar to original copies. This means you will need to take printouts only if your present report is not clear or have some errors. They make your request to submit paper copies.
Additionally, digital records also help you to avoid accidental loss, as everything is saved in clouds with certain security codes. Therefore, there are higher chances of forgetting the faded paper records.
With this, do not forget to keep a scanned record of your receipts and business expenses, defining little description saves the file forever. Even there are some tools prescribed by accounting firms you can consult with them. Such as I consulted with gold coast tax accountant to prepared convenient accounting details.
Hence, you can save all your records using electronic softwares. And taking their backup files will save your hassle of storing bulky registers and hiring another person to protect them. Better it will be to keep the backup of all details and save as per years above defined.