Gary Tannenbaum
Certified Public Accountant

871 Allwood Road      9128 Cove Point Circle
Clifton, NJ 07012        Boynton Beach, FL 33472
973.594.1155
              561.364.5911
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Saturday, October 20, 2018

Info Center Page

Recordkeeping Requirements for Individuals and Businesses

Well-organized financial records will save you time and money - not only in taxes but also in tax preparation.

For Individuals

Here's a quick rundown of suggested record keeping for individuals.
Keep your critical records indefinitely. Other records can safely be discarded after several years.
Keep tax returns (and any records used to prepare them) at least three years after the filing date if you have only W-2 and interest income, preferably six years if your returns are more complex. The IRS has six years to audit you if it suspects you've underreported income by more than 25%.
For investments in real estate, keep records until at least six years after the filing date of the return reporting the sale of that property.
For investments in stocks, bonds, and mutual funds, keep year-end brokerage statements and 1099s and toss interim statements. Retain all brokerage confirmations showing your cost basis. (You can reduce capital gains taxes by selling specific higher-cost shares.)
For your home, keep the settlement statement and records of home improvements. These validate your cost basis for future home sales if they are needed.
Some records should be retained permanently. This applies to IRAs and pensions (Forms 1040, 8606, 5498, and 1099-R), wills, divorce decrees, and most other legal documents.
You don't need an elaborate record keeping system. File tax returns separately by year, and file investment records by broker. For expenses, even an accordion file tabbed by category works wonders. Within a given category, use a separate envelope for each year's receipts and canceled checks, and enclose a tape showing the expense total.
For Businesses

What records should your business keep, and how long should you keep them? There are several categories of records that are important to a business, some for internal purposes and some for tax returns and other government requirements. Let's take a look at these by category.

Tax records. First, consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records, so support almost every item of income and expense that you claim. That means you must be able to produce receipts, invoices, canceled checks, or banking records supporting all expense items. Similarly, you should keep sales slips, invoices, or bank records to support all income items.
Accounting records. Most businesses have adequate accounting systems to capture routine transactions, but not for no routine transactions such as the purchase of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.
Travel and entertainment expenses. Good record keeping for travel and entertainment expenses is essential. Although the rules can be complex, in general you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help insure that your records contain all the required information. Also, if you have employees who drive on company business, make sure they keep an auto log showing the miles driven for each trip.
IRS audits. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or almost seven years after the tax year). For that reason, you should keep most income tax records for seven years.

The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.
Corporate records. Every incorporated business needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also keep copies of all contracts and leases. Finally, don't forget current and terminated employee files, and records of employee pension or profit sharing plans. Most corporate and employee pension plan records should be kept indefinitely.
Computer recordkeeping. The IRS has established a series of rules and recommendations concerning how electronic records must be maintained. Generally, such records should contain the same information as paper records and should be kept for the same length of time.
   

If you have questions about record keeping, or if we can assist you in setting up a system that works, contact our office. We're here to help.

Bothe, Demian & Co., LLC

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