For business owners, filing season is temporary.
Tax season, however, is year round.
Since every business transaction has a tax implication, it is important for you to maintain proper records.
And, if you think financial statements from your bookkeeper are the only items you need to retain –
Think again.
According to the IRS, you must keep records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.
Here are three ways you can store your records to comply with the period of limitations and meet the tax deadline:
Secure Online Storage
The world is going paperless.
By now, you have probably received messages from financial institutions pleading that you opt for electronic statements.
Those statements should be stored in a secure online storage system.
ShareFile, Box or some other customized cloud storage system are examples of secure online options that will allow you to store files safely.
Keep in mind, some cybersecurity experts discourage the use of thumb drives and hard drives for record storage. Since these devices can be lost or subject to theft, they should be used with discernment.
Physical Storage
Although your tax professional might be opposed to it, you can keep it old school and store all of your tax records physically.
This includes using a safe, file box and other physical storage options.
You can keep physical records secure with a lock and key, passcode or even surveillance.
If you choose to physically store your records, make sure the records are organized by year and type.
For example, you might keep Forms 1099 in one folder and financial statements in another. It is common to use folder tabs to properly organize physical records.
Smartphone App
To immediately save records while on the job, you can use a smartphone app.
Let’s say a contractor provides an invoice while you are onsite for a real estate project.
You can scan and save the invoice to Expensify or the app version of your online storage system.
Conclusion
Whichever storage option you choose, make sure you implement a process that ensures you will file your records timely.
A process will help prevent the record from getting misplaced or lost.
For instance, you can designate Tax Tuesday to print and file away monthly financial statements, invoices and other business records.
And finally, use discretion.
When your records are no longer needed for tax purposes, do not discard them until you have confirmed with all of your financial advisors.
For example, your insurance company or creditors may require you to keep tax forms longer than the IRS does.
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 of the storage providers listed within this blog. 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.
