The period of limitations is a time interval during which you can make changes in your tax return to ask for a credit or return. During this period, the IRS may require additional taxes for your business. This interval is calculated in years from the tax return filing date. If your return was filed before the due date, it regards as filed on the due date.
Periods of Limitations for Tax Returns
1. If your business failed to report income, you must have reported, and it exceeds 25% of your gross income, you should keep records of the related documents for six years.
2. IRS requires your company to retain records indefinitely in cases when you failed to file a tax return.
3. If you filed a fraudulent return, you must also keep the records permanently.
4. If the described above situations do not apply to your company, you should retain your supporting records for three years.
5. If you filed a claim for a depraved debt deduction or a loss from valueless security, IRS recommends that you retain the corresponding records during the seven years period.
6. If your company files a claim for a credit or deduction, you must keep the relevant records for either three years from the date of the original tax return submission or 2 years from the date when the tax was paid, depending on which event happened later.
7. If your business has employees, the IRS recommendation is to keep employment tax return records for four years after the date the taxes became due or were paid, whichever event happened later. Among the data you retain there must be information about your identification number as an employer, the amount of wages, annuities and pension payments and their dates, tax deposits, as well as the names, addresses, and social security numbers of employees, their dates of employment, occupation, and other information regarding employment payments.
Business Asset Records
You must retain records relating to the business possessions pending the period of limitations perishes for the year in which you dispose of these assets. These records will help you calculate the applicable depreciation, amortization or deduction costs and also figure increase or decrease when you sell or dispose of the property in any other way.
In case of acquiring assets in a non-taxable exchange, your basis in this property will be equivalent the basis of the assets that you gave up, plus an increase by the amount of money you additionally paid. With such an exchange, you need to keep records of both old property and new property until the period of limitations expires within the year in which you dispose of the new assets.
Business Ledgers and Other Accounting Documents
According to the CPA recommendations, you are required to retain your profit and loss statements, journal entries, financial reports, check registers, and general ledgers on a permanent basis. In the same manner, basic business documents among which corporate by-laws and amendments, annual reports, Board of Directors information, and business formation documentation, should also be kept at your company indefinitely. Documents that are not related to tax return records (such as account ledgers, invoices and expense reports, etc.) must be kept for at least seven years.
Human resources files
Your company can accumulate multiple employment files associated with current and former employees as well as applicants. Records for non-tax purposes must be retained for the entire duration of the employment term and additional seven years after an employee has left has been fired or laid off. Records concerning applicants who did not get the job should be kept for at least three years from the date of application.
If there have been accidents at your company as a result of which employees have been injured, you should keep such records for at least seven years after the case resolution or up to 10 years after compensation payments have been made. If your company has been sued for discrimination, it is recommended that you keep these records for at least four years after the case had been closed.
Also, consider permanent retention of documentation related to the employees’ pension, benefits, and profit distribution plans.
Credit Cards and Bank Account Statements
If these are supporting records for the tax return, you should take into consideration the periods of limitations described in this article earlier. In other cases, the retention period is at least seven years. To reduce the number of documents you retain, you can keep detailed annual reports of your business with disposing of monthly statements after one year from the date of their creation.
When your records are no longer needed for the tax return, do not dispose of them until you make sure that you will not use them for other purposes. For example, you may want to store documents longer than it is recommended by the IRS to provide data to your insurance company or creditors.
Before you discard your records, we recommend that you talk with your attorney or give us a call! (239) 772-1040
The one and only, Bud Krater, has been doing tax preparation in Cape Coral since 1980. In addition to tax return preparation, Bud Krater, Inc. provides full service payroll and bookkeeping in Cape Coral. All employees stay current with tax law changes. You won’t find a friendlier and more hospitable staff!Unfortunately, tax return preparation on your own can leave you with more questions than answers. Bud Krater has over 35 years of experience, and provides outstanding service to his clients because of his dedication to the three underlying principles: professionalism, responsiveness, and quality.