In the largest criminal tax case, executives from KPMG LLP were ordered to pay $456 million in fines, penalties, and restitution. You don’t have to actively commit fraud to face penalties and fines from the IRS, though.
You can protect yourself and your business by saving important tax documents. That way, if you’re ever audited, you can provide the necessary documentation. This will show you filed your tax returns on time with complete and correct information.
Follow this guide to learn how to save and store your business documents.
Know What to Save
The first place to start is knowing what documents are important and require saving. These can be a wide range of documents, but generally relate to anything that pertains to your business dealings
- Bank statements
- Permits and licenses
- Insurance documents
- Accounting records
- Legal documents
- Employment records
- Previous tax return documents
The traditional way of storing documents needed to file taxes is in a file cabinet. You could have one or several lined up in a lockable room. Then use hanging folders in the cabinets to organize the documents.
Once a tax year is over, and you no longer need particular documents, you can place them in document storage boxes. Then move those boxes to a storage closet or even a climate-controlled storage unit. This frees up your file cabinet for the next year.
Depending on the type of business you run, saving paper copies of everything could become tedious and quickly overwhelming. That’s when you can take a lesson from your online w2 generator tool.
Scan your business documents and enter them into a document storage solution. Then you can digitally “lock” the documents behind password walls. This gives you more freedom to access your documents from anywhere while also protecting them from anyone who may have unsavory intentions.
A digital solution also preserves the original condition of the document. Some receipts are printed on paper that can fade over time. This renders them useless should you get audited. A digital copy is also safe from physical damage, such as a fire or flood.
Storing Your Tax Documents Long Term
Once you file, you’re not done. You need to know how long to keep tax documents. The IRS recommends keeping your business documents for forever. However, if this isn’t possible for you, then there are shorter guidelines you can follow.
Keep your employment records for at least four years. Store your financial records for anywhere from three to six years. The IRS can request up to six years’ worth of financial history at any time.
Documents that should be kept forever include stock certificates, lease agreements, and operating permits.
Store Your Tax Documents
As you can see, there are two ways you can store your tax documents, paper, and digital. For most businesses, they find using a combination of these methods to be the most effective.
This allows them to save the originals of the documents in file cabinets, but then also have a digital backup.
Browse our other articles that discuss all areas of finance to help your business succeed.