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The complex structure of running a business requires substantial security and excellent organization. A valuable component that bewilders many business owners is the rules of how long they must keep their tax records. Read this comprehensive guide to learn how long to hang on to tax documents as well as the proper destruction method and how to dispose of them when the time comes.
Why Does Storing Tax Documents Matter?
Audits
The possibility of an audit is one of the most compelling reasons for retaining tax records. Generally, the IRS can audit your business for up to three years after a filing, but this period extends to six years if there's a substantial error reported.
Keeping detailed tax records aids in defending past deductions, income, and credits if the IRS or other tax authorities question them. Without such documentation, your business might face additional taxes, penalties, or fines.
Amendments
If your business discovers overlooked deductions, unrecognized income, or discrepancies, you may need to file an amended tax return. The IRS permits amending returns up to three years from the original filing date or two years from when the tax was paid. Keeping detailed tax records helps accurately correct errors, highlighting the significance of organized tax documents for easy amendments.
Loans and Financing
Lenders request your tax returns and related financial documents to assess your business’s creditworthiness and financial status. Some lenders require several years of tax documentation to observe a consistent financial trajectory.
Insurance Claims
Insurance companies often require detailed financial records to assess and validate claims accurately. Tax documents that reflect the purchase value, depreciation, and improvements of property.
The Duration for Keeping Tax Records
The Internal Revenue Service recommends that businesses keep their tax records for a minimum of three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. However, some exceptions necessitate holding onto your records for a longer period.
Employment Tax Records
The IRS mandates that businesses should retain these documents for at least four years after the date that the tax becomes due or is paid. This category includes tax filings, and any associated forms, such as W-2s and 1099s, along with details on wages, pension payments, and tax withholdings. Keeping these records meticulously can aid in the event of any discrepancies or audits concerning employment taxes.
Assets
Records pertaining to the assets of a business should be kept for as long as the asset is owned, plus an additional seven years after it has been disposed of, sold, or exchanged. This includes acquisition documents, depreciation schedules, and receipts for improvements. Maintaining these records is essential for calculating depreciation, amortization, or depletion deduction, and to ascertain the gain or loss when the asset is sold.
How To Dispose of Unnecessary Tax Documents
Once your business has kept its tax records for the designated time frame, the question arises about how to securely dispose of the documents. Utilizing a large office shredder from Capital Shredder offers superior security for tax records and other classified documents.
Shredders protect against identity theft as well as safeguard your business’s financial integrity. The machine turns these once-valuable records into unrecognizable pieces of confetti. Enhance your business’s security and efficiency by implementing a large office shredder today!