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Records Retention

   

Why should I keep records?

Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.

What kinds of records should I keep?

You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

How long should I keep records?

The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as they may be needed to prove the income or deductions on a tax return.

How long should I keep employment tax records?

You must keep all of your records as long as they may be needed; however, keep all records of employment taxes for at least four years.

How should I record my business transactions?

Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. These documents contain information you need to record in your books.

What is the burden of proof?

The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them.


Bookkeepers, Accountants vs CPAs.  What are the differences? 
At this time of year small business owners always have the same confusion on the differences between bookkeepers, accountants and CPA's.  I am an accountant with a 4 year degree.  I also have over 30 years of experience at Senior levels with two large corporations,  
As such, the State of Arizona has no authority for licensing as they do with CPA's. I am unable to do the work of a CPA such as filing taxes or giving out advice at the level of CPA's.  However with that said, if you are a small business owner on a tight budget it just makes good sense to use an accountant to do the simple day to day accounting functions such as billing, payables, bank and credit card reconciliations.  As a degreed accountant I am able to do most of what is needed to keep a solid and accurate set of financials for most any business, but a CPA or Tax Preparer will always have final review rights on what is actually allowed on the tax filing. 
There are good and bad bookkeepers and accountants just as there are good and bad CPA's.   I have taken over some real messes caused by sloppy and shoddy work from all levels of this business. 
As a result I have nearly 95 percent retention of my clients over the years. The 5 percent that are no longer with me closed their doors for relocation, retirement or family issues.   
I work closely with CPA's on a regular basis all across the Valley for any of my clients that want me to handle that communication so they don't have to be bothered by it.  Accountants such as myself charge 1/3rd of what a CPA charges in most cases for simple date entry and accounting functions.  A CPA won't usually get detail into your accounting software using Quickbooks.  (At least the ones I have seen and dealt with, they usually hire accountants to do the Quickbooks part of the detailed work)  CPA's (again, the ones I have worked with) most likely put in higher level lump sum entries.  I offer my clients detailed work on a daily or weekly basis then I wrap it all up for month end for them all; again with their CPA or tax person having the final review.  
I am registered with the IRS as a separate business entity and I carry all the necessary E&O and Liability Insurance to protect my clients and any future clients against fraud.  I have seen first hand, the damage that an unethical accountant can do to a business and it makes our entire profession look bad.  
So.... if you are a small business owner ask for references, ask for current clients contact names and phone numbers and also ask for the names of any CPA's that the accounting services you are considering hiring.  
My references, names and numbers are all available to anyone that asks, no problem.  
Have a great business day all  
http://work.chron.com/differences-between-bookkeepers-vs-accountants-vs-cpas-4173.htmlcountants vs CPAs.  What are the differences? 
At this time of year small business owners always have the same confusion on the differences between bookkeepers, accountants and CPA's.  I am an accountant with a 4 year degree.  I also have over 30 years of experience at Senior levels with two large corporations,  
As such, the State of Arizona has no authority for licensing as they do with CPA's. I am unable to do the work of a CPA such as filing taxes or giving out advice at the level of CPA's.  However with that said, if you are a small business owner on a tight budget it just makes good sense to use an accountant to do the simple day to day accounting functions such as billing, payables, bank and credit card reconciliations.  As a degreed accountant I am able to do most of what is needed to keep a solid and accurate set of financials for most any business, but a CPA or Tax Preparer will always have final review rights on what is actually allowed on the tax filing. 
There are good and bad bookkeepers and accountants just as there are good and bad CPA's.   I have taken over some real messes caused by sloppy and shoddy work from all levels of this business. 
As a result I have nearly 95 percent retention of my clients over the years. The 5 percent that are no longer with me closed their doors for relocation, retirement or family issues.   
I work closely with CPA's on a regular basis all across the Valley for any of my clients that want me to handle that communication so they don't have to be bothered by it.  Accountants such as myself charge 1/3rd of what a CPA charges in most cases for simple date entry and accounting functions.  A CPA won't usually get detail into your accounting software using Quickbooks.  (At least the ones I have seen and dealt with, they usually hire accountants to do the Quickbooks part of the detailed work)  CPA's (again, the ones I have worked with) most likely put in higher level lump sum entries.  I offer my clients detailed work on a daily or weekly basis then I wrap it all up for month end for them all; again with their CPA or tax person having the final review.  
I am registered with the IRS as a separate business entity and I carry all the necessary E&O and Liability Insurance to protect my clients and any future clients against fraud.  I have seen first hand, the damage that an unethical accountant can do to a business and it makes our entire profession look bad.  
So.... if you are a small business owner ask for references, ask for current clients contact names and phone numbers and also ask for the names of any CPA's that the accounting services you are considering hiring.  
My references, names and numbers are all available to anyone that asks, no problem.  
Have a great business day all  
http://work.chron.com/differences-between-bookkeepers-vs-accountants-vs-cpas-4

I generally tell all of my clients to keep the current year files at hand as usual but also move the prior year to another filing cabinet in the office someplace that you can easily get ahold of for reference. 

After that any files older than 2 years, based on the guidelines listed below, can be boxed up and sent to storage off site. 

Also in this day and age it is a great idea to use a Cloud based filing system.  I love the Cloud, it enables me to back up all of my important files, my clients files, all of my QuickBooks company files, anything I need to possibly get easy access to in case of a PC crashing or in case I am at one clients office and another one calls me with a question.  The Cloud can be accessed anyplace at anytime.  Look on my page here "Helpful Business Links and Info" to see my list of the top cloud based systems to sign up for.  My personal preference in DropBox and I pay 9.99 per month.  It's well worth the money especially when you consider how long it might take you to re-create your company financials.  If you are concerned about the security of your files and data I can show you how to password protect the individual files or find an alternative source for storage.

 

    • Business Income Tax Returns and Supporting Documents. It makes sense to keep a final copy of your business income tax returns and related correspondence with the IRS permanently to help you prepare future or amended returns. The IRS recommends that you retain supportive records that corroborate any business income or deductions claim until the “period of limitations” expires for that tax return. The period of limitation is the time period from your filing date in which either you might seek to amend your return for a credit or refund or the IRS may pursue your business for additional taxes. Typically, the IRS can come after your business for failing to report income for up to 6 years after your filing if the amount is greater than 25% of your business’s gross income. If you filed for a deduction for a bad debt or worthless security, the IRS suggests you keep your supporting tax records for 7 years. Under these circumstances, you may generally wish to retain your supportive records for at least 7 years.

    • Employment Tax Records. If you have employees, the IRS suggests that you retain all employment tax records for a minimum of 4 years after the date those taxes were due or were paid, whichever is later. These employment tax records include such items as your employer identification number, amounts and dates of wage, annuity and pension payments and tax deposits, the names, addresses, social security numbers, dates of employment and occupations of employees and records of allocated tips and fringe benefits.

    • Business Asset Records. If business property is involved, the IRS recommends retaining your records until the period of limitations ends from the year you disposed of that property. These records will aid you in calculating applicable depreciation, amortization or depletion deductions and to determine any gain or loss on that property. If the business property is real estate or a vehicle, keep the deed or vehicle title in a safe, secure spot until you sell or otherwise properly dispose of that property.

    • Business Ledgers and Other Key Documents. CPAs tend to be a conservative group and will often recommend that businesses keep their journal entries, profit and loss statements, financial statements, check registers and general business ledgers permanently. Similarly, major business documents, like annual reports, corporate by-laws and amendments, Board of Director information, annual meeting minutes and business formation documents, should also be retained on a permanent basis. Aside from supportive tax records, other documents such as accounts payable/receivable ledgers, invoices and expense reports should be retained for a minimum of 7 years.

    • Human Resources Files. You may have numerous other employment files related to current and former employees and applicants to your firm. Excluding employment tax records, files relating to current employees should be retained while they are working for you and at least 7 years after a current or former employee has left or been terminated. For any job applicants who were not eventually hired, keep these files for at least 3 years. If an employee has suffered an accident on the job, consider retaining those records for at least 7 years after that matter was finally resolved or up to 10 years after which any workers compensation benefits were paid. If an employee lodged a discrimination claim against your business, consider retaining those records for at least 4 years after the case is finally concluded. Think about keeping records of employee benefit, pension payment or profit sharing plans permanently.

    • Cancelled Checks. Cancelled checks without a tax or other significant business purpose can normally be destroyed after about 7 years. If a cancelled check is a supporting tax document, then follow the IRS rules discussed above.

    • Bank Account and Credit Card Statements. Generally, these records should also be retained for about 7 years. This retention period may be longer if they are supporting documents for tax purposes. However, if these statements have no tax or other key business purpose, then consider retaining your business’s detailed annual statements for 7 years and disposing of underlying monthly statements after about a year.

There may be times when you must suspend your usual record disposal plans, such as when litigation is likely or pending on a business matter. You may wish to consult with your attorney or tax professional to look into your individual circumstances to help guide your particular business on its record keeping and disposal policies. To avoid identity theft and to protect sensitive business information, be sure to properly dispose of or shred appropriate business records. For more on tax record keeping and retention, check out IRS Publication 583, Starting a Business and Keeping Records at www.irs.gov/pub/irs-pdf/p583.pdf.

 


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