Keeping Tax Records: San Francisco Bay Area Small Biz Edition

If you’re doing the books, juggling the hiring, navigating supply problems, delivering work to clients, and thinking about big-picture items for the year … you might be a small business owner.

If you’ve got a lot on your mind and more gets added daily? You might be a small business owner. 

If you don’t have a big staff and get pulled in a lot of different directions and you’re doing the mundane task of organizing your tax documents … you might be a small business owner. 

Most business owners are not equipped to do all of these tasks well, so, you do the best that you can. I get it. Now, ideally, as you grow your San Francisco Bay Area business, you’ll want to delegate some of that out to others on your team. 

That’s why, today, I’m laying out the tax document 411 for you, so you can be equipped to face that task and put it in the hands of a trusted team member. Now that we’ve done the work of positioning you in the best tax situation possible, you’ll need to hang on to your paperwork for a while.

But you know tax obligations don’t stop mid-April for a business owner. If you want to talk about some ways to organize and automate some of those financial tasks, I’m here to lend my insight and get you prepared for the rest of the year – and even years to come: Patti  (408) 775-7790 Gale 408-775-7800

So, let’s start the conversation by discussing keeping tax records – the what and the how long…

Keeping Tax Records: San Francisco Bay Area Small Biz Edition
“You've got to be on top of your record-keeping. Imagine one day if a major bank is taken down and the records are gone.” - Ross Perot Jr.

The federal tax filing day may be over for some people, but if you’re running a small business, you know the tax season never really ends. Starting with documentation.

How long do I have to keep business tax documents? is a natural question this time of year – and keeping tax records looms large as you often use them for financing and budgeting and paying taxes at other times of the year. 

Here’s how to stay on top of that.

The timeframes for keeping tax records

Generally, keep any record that supports any figure on your tax return, such as income, expenses, tax credits, or on your tax return deductions (home-office or meals and entertainment are big examples) until the period of limitations for that tax return runs out. Business tax returns and other tax documents have a statute of limitations (how long the IRS has to question your tax filing) similar to that of personal tax returns and documents: 

• Three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file. 
• Six years if you do not report income that you should report and it is more than 25% of the gross income on your return. 
• Seven years if you file a claim for a deduction from a loss from bad debt. 
• Keep employment tax records at least four years after the date that the tax becomes due or is paid, whichever is later. 
• Keep records indefinitely if you don’t file a return or if you file a fraudulent return. 

Generally, the higher your income and profits and the more complicated your return, the better it is to keep complete tax backups as long as possible. Keep your state tax documents with your federal ones.

Keeping tax records: The “other” documents

Many records can intertwine with the tax ones of your company, and you may need to keep these for different lengths of time. Legal documents like deeds, patents and trademark registrations, property appraisals, rental agreements, bills of sale, and ownership records you keep indefinitely. 

Keep all accounting documents and anything bank-related such as account, credit card, and investment statements and canceled checks for at least seven years, maybe longer (check with us regarding your particular circumstances). Keep insurance documents until you replace expired ones. 

By the way, regulatory agencies also often have their own retention recommendations. The Occupational Safety and Health Administration, for instance, says to keep records of serious work-related accidents for five years. The U.S. Department of Labor says to keep most payroll records for at least three years. The U.S. Chamber of Commerce says to keep even job advertisements, applications, and resumes on file for at least a year. Other agencies might have retention requirements, too, depending on the state and on your industry. We can help you check. 

Ditto the ever-changing breaks for businesses, too, such as bonus depreciation and the meals and entertainment deduction — especially get with us on this one if you’re thinking of amending a past return to re-do expense deductions. 

How long should you keep your tax returns themselves? Well, you never know when a given year’s return will come in handy for filling out future returns or if you decide to amend one someday to try for a past tax break like the Employee Retention Credit. And lenders and other sources of financing may want your return for years to come.

Not to mention that the IRS got a big funding bump last summer as part of the federal Inflation Reduction Act and has pledged more scrutiny of many taxpayers (though their focus, they’ve said, is targeting accountability for those in very high tax brackets).

Keeping tax records: Storing them

Keep your tax returns and, for that matter, many of your records for good. It’s never been easier. 

The IRS is finally catching up with the private sector in its common use of digital documents. E-documents for your taxes must be clear and identical to the paper original. 

Desktop printers can now digitize a document. You can put it on a thumb drive or other external media – which remember could itself be obsolete in a couple of decades – or upload it to a cloud storage service. Some are from household names like Amazon and Google but others are more geared toward businesses and come with varying price tags. 

When it does come time to toss old tax records, DO NOT just heave them into the dumpster behind the parking lot – that’s treasure for identity thieves. Use your shredder instead.

Here’s a helpful reference chart for keeping tax records:

(Unless stated otherwise, “years” refers to the time after the return was filed. Returns filed before the due date are treated as filed on the due date.)

Your company’s taxes and recordkeeping are key parts of your San Francisco Bay Area small business. We’re here to help you at tax time and all year long.

All the best,

Patti ONeill and Gale Bergado