Business Strategies

Good records make your return more accurate and give you proof if the IRS ever asks questions. These answers explain what to keep, how long to keep it, and how to keep it organized.

Why do tax records matter?

Your return is a set of claims about your income and deductions. If you are examined, you must be able to support them. Records also help you claim every deduction and credit you deserve, and they make preparing the next return faster.

What should I keep?

• Income documents: W-2s, 1099s, K-1s and records of other income.
• Receipts and statements for deductions and credits: medical costs, charitable gifts, mortgage interest, property tax, childcare and education expenses.
• Records of purchase and sale for investments and property, including improvements.
• Business records: invoices, receipts, mileage logs, bank statements and payroll reports.
• Copies of filed returns and any notices from the IRS or Georgia Department of Revenue.

How long do I keep them?

The general rule is to keep records until the period for assessing tax on that return has passed. That period is generally three years from filing, but it is longer in some cases, such as when income was significantly underreported or no return was filed. The IRS explains the details at irs.gov. Many professionals recommend holding on to returns themselves indefinitely.

Are some records kept longer than others?

Yes. Records that establish the basis of property, such as a home or stock, should be kept until the period of limitations runs out for the year you sell or dispose of it, which could be many years after purchase. Employment tax records have their own retention rules.

Is a digital copy acceptable?

Generally, yes, provided the scans are legible and reproduce accurately, and you can retrieve them. Back them up in more than one place and protect them with strong passwords and encryption, since they contain sensitive information.

What if I lose records?

Do not panic. You can often reconstruct them from bank and card statements, request copies from employers, banks or brokers, or order transcripts from the IRS. For some deductions, a reasonable reconstruction is better than nothing, but contemporaneous records are far stronger.

What is a good system?

Choose one place, physical or digital, for each year's documents. Save receipts as you go rather than at year-end, and keep business and personal spending separate.

If your records are in disarray, or you need help setting up a system for your business, see our bookkeeping services or reach out to us.