Tax season has come and gone, and summer is when businesses start getting lax about their recordkeeping. Doing so, however, can cause a lot of headaches later on in the year. On the other hand, strong recordkeeping makes tax time go faster and helps you keep track of your company’s performance. Here are some great tips to keep you organized:
Recordkeeping Tip #1: Don’t throw away employment tax records.
According to the IRS, you should keep employment tax records for at least 4 years from the date you filed or the date the tax becomes due, whichever is first. But if you receive income from various sources or have a unique situation, you might want to save them for at least 6 years. The IRS has the right to audit someone for up to 6 years if they suspect he or she has reported less than 25% of his or her income.
According to the IRS and other tax experts, these are the documents you should keep:
- Your employer identification number (EIN).
- Amounts and dates of all wage, annuity, and pension payments.
- Amounts of tips reported.
- The fair market value of in-kind wages paid.
- Records of fringe benefits provided, including substantiation.
- Records of allocated tips.
- Dates of amounts of tax deposits made.
- Copies of employees’ and recipients’ income tax withholding allowance certificates.
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount of weekly rate of payments you or third-party payers made to them.
- Dates of employment.
- Any employee copies of W-2s that were returned to you as undeliverable.
- Names, addresses, and Social Security numbers of employees and recipients.
If an employee quits or is terminated, you should save these documents as if he or she still worked for your company.
Recordkeeping Tip #2: Keep supporting documents, too.
The items listed below are documents that can help you support tax documents, prepare financial statements, and keep track of your performance. You will want to organize them by type and year so they are easy to retrieve.
- Gross receipts—income you receive from your business without deductions.
- Purchases—receipts that show the amount paid and the cost of any business purchase.
- Invoices—documents that track a business expense. Examples of these can be utility statements, phone bills, or rental agreements.
Recordkeeping Tip #3: Get in touch with your state.
Some states may require records in addition to those needed for federal tax purposes. You should get in touch with your state to see if that is the case. For example, you may need to keep records of payments for state unemployment insurance or spend on employee training.
Recordkeeping Tip #4: Ditch the docs when you’re done.
Once the required retention time frames have been met, set a schedule to destroy any paper documents and create a “destruction log.” This ensures that no confidential employee information is inadvertently released.
Always be in the habit of maintaining good records. They can help you keep your business working as efficiently as a small business can run. By keeping a paper trail, you can ensure that you are prepared, should an audit occur.