Key takeaways:
- The IRS generally requires you to keep records for three to seven years, but your creditors or insurance may require longer.
- Secure cloud storage and smartphone apps are now the industry standard, but physical backups still provide a “fail-safe” for many.
- Implementing a weekly filing routine prevents the stress of lost receipts and misplaced invoices.
For business owners, filing season is temporary. Tax season, however, is a year-round reality.
Every business transaction has a tax implication, which makes maintaining proper records vital. If you think financial statements from your bookkeeper are the only items you need to keep—think again.
According to the IRS, you must retain records that support every item of income, deduction, or credit shown on your tax return until the “period of limitations” runs out. This usually means keeping records for at least three years, but in some cases, you should hold them for up to seven years or even indefinitely.
Here are three ways you can store your records to stay compliant and make your next tax deadline a breeze:
1. Secure Cloud Storage
The world has gone paperless, and your business should too. Most financial institutions now offer electronic statements, which are easier to track and harder to lose.
Store these in a secure, encrypted cloud system such as ShareFile, Box, or a dedicated firm portal. These platforms offer better security than local hard drives or thumb drives, which can be lost, stolen, or corrupted. Cloud storage ensures your “village” of advisors can access what they need safely and efficiently.
2. The “Old School” Physical Backup
While your tax pro might prefer digital, there is still a place for physical storage. If you prefer paper, use a fireproof safe or locked file box.
The key to physical storage is organization:
- By Year: Never mix tax years.
- By Type: Use folder tabs for specific categories like Forms 1099, Bank Statements, and Payroll Records.
- Safety First: Use passcodes or surveillance to ensure your sensitive data remains private.
3. Smartphone Scanning Apps
To capture records while you’re on the go, a smartphone app is your best friend. If a contractor hands you an invoice while you are onsite at a real estate project, don’t put it in your glove box—scan it immediately.
Apps like Expensify, QuickBooks Mobile, or even the mobile version of your cloud storage (like Box or Google Drive) allow you to digitize a receipt in seconds. This prevents “faded thermal paper” issues where receipts become unreadable before tax season even arrives.
Conclusion: Implement a Process
Whichever storage option you choose, the system only works if you use it. Consider designating a day of the week (e.g. “Tax Tuesday”). Spend 15 minutes that day printing or digital-filing your weekly financial statements, invoices, and business records.
One final tip: Use discretion before hitting “delete.” Even if the IRS period of limitations has passed, your insurance company, banks, or creditors may require you to keep certain forms longer. Always check with your financial team before discarding any tax-related documents.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction. In addition, The Little CPA does not recommend any specific storage provider; please use at your own discretion. The Little CPA is not liable for any issues that arise from your engagement with a file storage company.
