When starting a business, look to how you will keep your records! The foundation of any successful business is a well-maintained set of records. A good set of records allows a business owner to check in on the health of their business and make effective decisions, such as opening new locations, obtaining a loan, or hiring new staff. Accountants and other staff use records to prepare financial statements and prepare tax returns in an efficient manner. Records may also help business owners by acting as supporting documentation when they deal with state and federal tax issues, such as an IRS audit or if they need to request a refund on an overpayment.
How should I keep my records?
With some exceptions, most businesses are able to maintain their records how they wish, such as through a robust electronic accounting system for a large engineering corporation or a simple notepad for a small mom & pop operation selling trinkets online. Regardless of the type of business, you should use a method that accurately reflects your income and expenses. That data is necessary when filing your tax returns!
Records to keep
Documents such as copies of receipts, electronic spreadsheets, purchase agreements, invoices, carbon paper estimates, payroll stubs, and past tax returns are all things a business should maintain as part of their records. Putting these documents in an ordered filing system can help keep you up-to-date on the activities of your business, as well spare your accountant from headaches!
How long should I hold records?
While there is no hard timeframe in how long you should keep your records, a generally accepted rule-of-thumb is that businesses should hold on to records for 7 years. Some banks may demand 3+ years of statements before approving a business loan. IRS audits generally ask for 3 years of records and any refund claims are within a statute of limitations 3 years from the date of the filed return. Some state tax agencies may possibly ask for records going further back in their audits.
Good records help a business flourish. However, as the business expands, the recordkeeping, especially the accounting, may get time-consuming and take away from a business owner’s main duty, growing the business! We can assist with that accounting recordkeeping here at MiklosCPA! We are a California-based CPA firm that has assisted many emerging firms with their bookkeeping and tax needs, as well as provide support for business owners as they grow their firms. Learn more about our services by scheduling a chat with us! Also check our social media pages for future “good-to-know” postings like this and other interesting tax tidbits.