The Taxman Cometh: How Long Should You Keep Your Records?

By: In: Small Business On: Feb 27, 2015
The Taxman Cometh: How Long Should You Keep Your Records?

 

It’s tax season, that time when people get night sweats about what records and receipts they can safely toss. You can’t keep all that paper, but dump the wrong file and an audit could turn your bad dream into a reality.

How long do you really need to store your tax-related documents? The IRS recommends holding on to them for three years (the amount of time you have to amend your tax return to claim a refund). Of course, that’s just a guideline. Ask a tax attorney or a CPA, and they’ll recommend you keep your business records permanently.

 

Five Tips for Reducing Document Anxiety

The time frame for retaining records is just one of the decisions that inform any tax record management plan. To be fully prepared, practice the following.

  1. Don’t procrastinate. According to a recent survey by the National Small Business Association, the majority of small businesses spend 40 hours preparing to file their taxes. Any mistakes you make by rushing through the process at the last minute will surely come back to haunt you.
  1. Get organized. With all those records piling up, you need an efficient way to access your critical records quickly when the taxman calls. IRS auditors don’t care if your inventory summaries are buried under boxes of sales receipts—they want to see everything you’ve got now.  When you engage a trusted partner to store your records, you can be certain that all pertinent records are retained and at the ready.
  1. Prepare to estimate. Working with a strong records management partner will not only help you organize and prioritize what you do have, it will also highlight what you don’t. Although the “Cohan rule” allows you to estimate your expenses even if you don’t have receipts, you still should have something to show an auditor. Best to track down any missing documents and add them to your database.
  1. Be ready for a long haul. Budget cuts to the IRS over the past five years have slashed the number of auditors by 15 percent. The good news? You have a lower chance of an audit this year. The bad news? If you do get chosen, it will likely take a lot longer for an overworked auditor to resolve your case.
  1. Shred what you don’t need. Once time’s up for your stored records, you’ll need a way to dispose of them securely. Organizing a regular schedule with a recognized shredder can ensure the privacy of your data isn’t compromised and your company meets all compliance requirements.

Dispel Tax-Time Dread

If your recent nightmares involve IRS agents and troubling notices in your mailbox, organizing your records ahead of time will help you get through the days and nights before April 15. Even if you’re too late for this year’s Tax Day, initiating a plan with a trusted expert now can lead to a records management plan that keep your documents and data organized year round.

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About the author

René Grajales

North America Vice President of Sales Strategy and Solutions Since joining in 2007, Grajales has lead a series of changes that will forever impact the way Iron Mountain serves their customers. His passion for supporting the ever-changing needs of our clients, and ensuring Iron Mountain is a company that is extremely easy to do business with are only rivaled by his dedication to customer satisfaction. Prior to Iron Mountain, Grajales founded and managed an international import/exports logistics, warehousing, and distribution company in Latin America, held various roles in IT Consulting with EDS/HP assigned to the airline industry, and as the Director of Channels Sales and Marketing for Latin America within the Intelligroup/Empower Solutions group of companies serving ERP customers with offshore IT consulting and programming solutions. He holds a Master of Business Administration, a Postgraduate degree in marketing, as well as a Bachelor of Science in Business Administration and Computer Information Science from the University of Tampa, Florida. In addition, Grajales has attended leadership executive training at Harvard University, Boston and Northwestern University Kellogg School of Management, Illinois.