While running a business can lead to successful payoffs, there are also a lot of serious components you must follow. That is because when you own a business, you are under the watchful eye of the Internal Revenue Service and Federal Trade Commission. Failure to have good record-keeping of your taxes can lead to compliance issues and increased liability risks. As such, it is important for your business to know about the best practices when it comes to keeping tax records.
The longer your business remains up and running, the more paperwork you will compile. As such, you may find yourself itching to throw all that paperwork away and clear the clutter. However, you can’t rush to do that just yet. There are certain documents that you are under a legal obligation to keep.
Three years is the most common timeframe for how long you should keep business-related tax records. That is because the statute of limitations for tax returns and associated documents is about three years. However, some businesses will keep their tax records for a bit longer than this obligated timeframe out of an abundance of caution.
After three years, you can dispose of that information but keep in mind that those documents contain sensitive materials. As such, you must follow certain guidelines for destroying sensitive documents to avoid fines from the FTC.
While three years is a commonality, it is important for your business to know that there are exceptions to this rule. You must keep your tax records for about seven years.
It may seem surprising, but in certain cases, you may have to keep your tax records indefinitely. Hopefully, you don’t find yourself in this situation, as indefinite record-keep applies if you do not file a report or file a fraudulent return.