Tax tips for small business owners. Excerpt from Small Business Taxes Made Easy by TaxMama Eva Rosenberg. Get more advice for filing taxes from TaxMama’s posts on the Equifax Finance Blog.
Keep all tax returns forever. Ignore what anyone else tells you. There have been too many times that the IRS or the state has made demands on tax returns filed 8 or 10 years ago, saying they were never filed. If you have a copy, you can insist it was filed.
If you send money in with those tax returns, keep a copy of the canceled check in the file with the returns. If you got a refund, make a copy of that, too. If the IRS grabbed your refund, you wont have any check copies, but you’ll have a letter saying it grabbed the refund from a given year. One of these three items will prove that your return was filed.
Keep copies of all asset purchases for the life of the asset plus 10 years or for the life of the loan on the asset plus 10 years. If it’s real estate, keep the paperwork until you sell it, plus 10 years.
Basically, keep everything for at least 10 years after its useful life or tax return filing date is past.
You realize, of course, there is this rule in the universe: As long as you keep it, you won’t need it. The minute you throw it out, everyone will need it.
Until two years ago, I kept all my client records, from way back in the 1970s. Finally, I got bold and decided to give the records to the clients whose addresses I still had – and to shred the files of people I couldn’t reach. I only shredded the files that were at least five years old, plus my own personal records.
One hour after I finished shredding, a client who’d filed bankruptcy a couple of years earlier, owing me money, called. He wanted the paperwork on the money he owed me so he could pay it off. (He had never listed my debt in the bankruptcy.) Well, I didn’t have the papers, so I couldn’t prove what he owed me. If it had been anyone else, I could have waved good-bye to that money. Luckily with Adam, he just shrugged and sent me what he thought he owed me.
Eva Rosenberg, EA, is the publisher of TaxMama.com®, where your tax questions are answered. She teaches tax professionals how to represent you when you have tax problems. She is the author of several books and e-books, including Small Business Taxes Made Easy. Follow her on Twitter: @TaxMama