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Good Business Performance Starts with Good Record Keeping

June 14, 2016 | By More

How long to retain records for tax purposesGood financial record keeping is vital to the success of any business. Good records help plan for the future, prepare accurate financial statements and tax returns, and enable business owners to create sensible budgets and cash flow projections.

How keeping good records is good business

Your bookkeeping records help you make smarter and well-informed business decisions. You don’t know where you’re going if you don’t know where you’ve been. Solid financial record keeping for your business helps you plan for the future based on real data.

Your company’s financial records:

  • Provide the basis and support for your tax return preparation (track income, expenses, deductions, etc.)
  • Help you prepare financial statements (income statement, balance sheets, cash flow) and other financial reports that help you monitor your company’s progress
  • Track inventory and maintain better inventory controls and spending
  • Identify income sources and pricing levels
  • Collect revenues and know which customers owe you money
  • Track your basis in property – needed to figure gain or loss on the sale, exchange or other disposition of property; depreciation, amortization, depletion, and casualty losses
  • Are the foundation for formulating accurate, sensible budgets and cash flow projections

Which records should I keep?

Although there is no law stipulating what you must keep, we recommend small businesses retain bookkeeping records include reconciled bank statements, cash receipts by customer, payroll reports, vendor invoices, accounts payable and accounts receivable aging, and anything specifically related to your field or industry that you’ll need for your tax returns. We also recommend tracking all your business-related income and expenses in an accounting software program.

Depending on your occupation, you might have expenses related to travel, meals, entertainment, wholesale goods or supplies, and equipment purchases or leases.

In addition to your financial data, the Association of Records Managers and Administrators (ARMA International) offers these basic guidelines:

  • Business documents – Establish your right to conduct business, such as articles of incorporation, by-laws, and business and tax-collection permits
  • Business agreements – Demonstrate your company’s obligations to your customers/clients, suppliers, vendors (such as contracts), and your staff (such as employee benefit packages and individual selections)
  • Executive decisions – Show how business decisions were made and commitments honored, including annual reports, dividend records, board of directors meeting minutes and actions, and company health and safety documents
  • Regulatory compliance – Proof you have met legal and regulatory requirements of your industry.

How long do I keep financial records?

There is no set answer but general guidelines that relate to income tax returns are outlined by the IRS. Time frames range from three to seven years, depending on certain criteria (the IRS recommends “indefinitely” for certain other scenarios).

Hold on to all filed tax returns and basis records because they will help with preparation of future returns and provide excellent financial history. Employment tax records should be retained for at least four years.

A good rule of thumb is to keep documents as long as you need to prove the income or expense/deduction on a tax return. Your accountant should be able to recommend the best course of action for you.

Contributed by Maria Rollins – CPA, MST, Partner at KRS CPAs
Kreinces Rollins & Shanker CPAs is located in Paramus, New Jersey. For more information or to contact Maria Rollins, visit http://www.krscpas.com

Article information should not be used exclusively to make legal, financial or tax decisions. Because laws and rules can change frequently, topics may not always be updated to reflect these changes or may not apply to your unique situation. It’s prudent to seek out the advice of a professional for your specific needs.

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Category: Business Bookkeeping

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