Maintaining Your Tax Records: 4 Important FAQs Answered

Sep 15, 2022Client Documents, Individual Tax, Tax Planning0 comments

tax records

Maintaining Your Tax Records: 4 FAQs Answered

As advisors, we receive frequent questions from our clients regarding the ins and outs of tax record retention. From what to keep to how long it’s recommended to keep certain tax records, it’s a hot topic throughout the year. That being said, the answers aren’t always as cut and dry as we would like them to be, as it usually depends upon your specific tax situation, goals, and planning needs. That’s why our tax advisors have decided to tackle your top questions about maintaining your tax records in one comprehensive guide!

1. Which Tax Records Should I Keep?

This is one of the most frequently asked questions we receive from our clients, and the answer grows in complexity as your financial success grows! As a general rule, the IRS requires taxpayers to keep books and records sufficient enough to indicate their gross income amount, deductions, credits, or any additional items that must be reported on your tax return.

So, as an individual taxpayer, this will usually include items like information statements (Forms W-2, 1099, 1098, etc.), bank statements and canceled checks, charitable contribution documents, investment sale/purchase records, and real estate documents. Additionally, the IRS recommends that taxpayers maintain a copy of past returns they’ve filed, including all schedules and attachments, as well as proof of previous tax payments.

2. How Long Do I keep My Tax Records?

If you’ve neglected to report at least 25% of your income, the IRS has up to 6 years to initiate an audit. With that in mind, it’s a good idea – especially for self-employed taxpayers – to keep your 1099s, receipts, and other records of business expenses for at least 6 years. Depending on your situation, the following is recommended for general record retention:

1 year for pay stubs and monthly brokerage statements, 3 years for W-2s, 1099s, 1098s, charitable contribution checks and receipts, and other tax supporting documents. If you have bad debt/worthless securities records, keep your tax records for 7 years, 10 years for taxes paid to a foreign government, 3 years after you sell any investments and property, and keep copies of filed tax returns, payments, and proof it was mailed and filed forever.

You May Need to Keep Your Tax Records Longer

The statute of limitations for keeping your tax records is generally 3 years from the date you file your return. However, In some situations, books and tax records may need to be kept longer, like in the event that income is found to have been inderreported by mroe than 25%. In this case, your tax records should be maintained for 6 years. Learn more by clicking the link below!

1. What Tax Records SHould I Keep?

When it comes to tax recordkeeping for businesses, your system will be unique to your situation, making the record retention guidelines unique to your situation. However, here are some general guidelines on maintaining your business tax records: Canceled checks for tax payments, correspondence from IRS/taxing authorities, and depreciation schedules should be kept permanantly.

You should also maintain a permanent record of income tax returns, inventory reports, payroll tax returns, and sales tax returns. Any FUTA, FICA, SUTA, or income tax withholding records should be kept for at least 4 years. At a minimum, the books and tax records should be maintained until the expiration of the statue of limitations, including extensions, for each tax year.

4. At What Point Do I Need a Bookkeeper?

As we previously mentioned, financial success and growth causes the complexity of your tax planning to grow. In that respect, the phrase “more money, more problems” can sometimes ring true! However, that statement doesn’t have to be the case when you hire the right tax advisors and bookkeper at the right time. If you’re a business owner and you don’t already have bookkeeper, you may already be behind the curve! Keeping your personal tax records and your business tax records can quickly become a full-time job.

It’s best to get ahead of your business’ growth, rather than become buried in the work of recordkeeping down the line when you have even more irons in the fire. Generally, your tax complexity should never exceed the bandwidth you have to maintain adequate tax records.

Pro Tip for Your Tax Records

If you’re a business taxpayer and you have carryforward items from prior year income tax returns, the internal record retention plicy may need to be modified. If so, you may need to retain certain original records of transactions to support any tax benefit item or position.  Tackle the ins and outs of your business taxes with our help by clicking the button below!

Tackle More Than Your Tax Records

While we may have just scratched the surface on your questions regarding tax records and how to properly maintain them, we are here to help! From your personal tax records to your business tax records, our advisors can help get you organized and stay organized, while providing year-round tax planning and bookkeeping. If you’re ready to learn more about what our tax advisors can do for you,  give us a call at (972) 771-6707 or visit our website today!

Maintain Your Tax Records with Our Help

Don’t get bogged down in the process of maintaining your tax records – let our team help you tackle your recordkeeping and beyond!


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