You thought tax day was over and you could sit back and think about summer vacation – but we’re giving you more to think about. Or it may be time to clean out your office and the question pops into your brain: What do I do with all those files of documents? Payroll information and business expenses are clogging your files and desk drawers. Do you really need to keep it all? And for how long?
Yes, and seven years, respectively.
Tax experts say it’s best to stick with the seven years rule whether you have 20 employees or a sole proprietorship running everything through your personal tax return.
If the IRS decides you failed to report 25 percent of your income, they are allowed, under law, to audit you for the last six years.
So, what needs saving, you ask? Unfortunately, just about everything. More small businesses are being targeted by the IRS now, so you’ll need to provide the IRS auditors with a record of everything or risk paying penalties. Cancelled checks, credit card statements, receipts and anything you’ve including on your tax return should be saved.
Of course, if you’ve saved most of your documents online, you don’t need to keep up the paper trail. Just be sure to back them up.