Navigating Records Management During Tax Season

Prioritizing records management during tax season helps you maintain tax compliance and keep everything together.

A detailed document retention plan lets you stay on top of your financial health and avoid tax-related surprises. An appropriate strategy helps guarantee compliance with Internal Revenue Service (IRS) regulations and brings peace of mind, knowing that all the required documents are in place.

6 Guidelines for Tax Record Retention and Management

Implementing tax record retention guidelines can make tax season easier to get through for your organization. These steps help you comply with IRS record retention requirements and keep financial documents secure.

1. Know Which Tax Documents You Need

Businesses must retain specific tax documents for accurate filing. Important documents include:

• W-2s, 1099s, and payroll tax filings
• Deductible expense receipts and invoices
• Bank and credit card statements to support financial transactions conducted
• Business tax returns and supporting documents
• Contracts and agreements related to financial transactions

Keeping these records serves to satisfy IRS document retention requirements and maintain proof that is required in the event of an audit. The IRS provides guidance on good record-keeping practices to simplify tax filing for businesses.

W-2s, 1099s, and payroll tax filings report employee wages, independent contractor payments, and payroll taxes withheld, such as Social Security and Medicare. Holding onto business tax returns proves that you filed taxes for the prior year. Supporting documents summarizing your financial activities for the previous year may include balance sheets and profit and loss statements.

If you submit incomplete or inaccurate records, you risk audits and legal and financial consequences.

2. Have a Tax Checklist

A tax checklist keeps your business organized and guarantees that all necessary documents are ready for tax prep. Preparing for taxes is much easier when you have a clear list of required documents, which may include:

• Business income statements and expense records
• Payroll and contractor payment details
• Previous years’ tax returns
• Estimated tax payments made throughout the year
• Depreciation schedules for business assets

Using a checklist streamlines tax filing and reduces the risk of missing important records. You can improve efficiency by storing these documents securely with document management solutions. 

In addition, you should maintain records of any loans, lines of credit, or other financing agreements since the total amount of financing can influence interest deductions and other financial responsibilities. Most businesses record all financial transactions in detail, which helps them effectively manage their tax obligations and comply with tax laws.

Businesses should also preserve records of all asset purchases and the depreciation schedule itself. These documents track business property and equipment that can depreciate over time, which is important for calculating annual deductions. Without accurate records of these assets and their depreciation, you may miss out on valuable tax benefits.

3. Use a Reputable Tax Filing Service

Choosing a reliable tax filing service or software helps businesses file taxes accurately. A reputable service can help ensure compliance with IRS recordkeeping requirements and minimize errors. Options include:

• Hiring a certified accountant or tax professional
• Using IRS-authorized e-file providers
• Subscribing to trusted tax software

Businesses filing complex tax returns or managing multiple revenue streams benefit from professional tax services. 

4. Know the IRS’s Document Retention Standards

The IRS has specific guidelines on how long to save tax returns and other financial records. General record retention guidelines include:

• At least three years for tax returns and supporting documents
• Four years for employment tax records
• Seven years for records related to bad debts or securities losses

Understanding these IRS document retention requirements prevents premature disposal of important records. Secure document storage solutions and offsite storage services help you stay compliant.

5. Save (or Digitize) Important Documents

Physical tax records require space and are more vulnerable to loss or damage. Digitizing tax documents improves accessibility and security. Best practices include: 

• Document management systems: They categorize files by year, expense type, or transaction, allowing quick searches and reducing time spent during audits or tax season. These systems often include powerful search functions that can quickly pinpoint the specific records you are interested in, eliminating the tiresome task of going through stacks of paper or electronic documents.

• Encryption and access controls: Sensitive tax documents contain personal and financial information that cybercriminals could target if not properly protected. Encrypting digital records and setting strict access permissions can safeguard information from unauthorized access. Only authorized personnel should be able to view, edit, or share certain documents, reducing the risk of breaches and potential legal consequences.
• Offsite cloud storage: Cloud-based and offsite storage allows you to keep records anywhere, eliminating the need for physical file cabinets. It also can make it easier to search for records, saving valuable time during tax season or audits.

Secure digitization services help you transition to digital tax record storage, allowing a smooth shift with proper safeguards in place. This keeps records organized and offers protection against potential data loss due to physical damage or natural disasters.

6. Shred Old, Redundant Tax Documents

You should securely dispose of tax records once you exceed the retention period. Discarding sensitive documents improperly puts individual details at risk through security breaches and identity theft incidents. Shredding financial documents including old tax records, contracts, payment records, and other documents that contain sensitive details is the safest way to prevent unauthorized access.

Properly disposing of these materials reduces the risk of fraud and legal issues that stem from data security vulnerabilities. 

Using professional shredding services is the most reliable way to comply with data protection laws and safeguard your business’s reputation.

Start Prepping for Taxes Today

Efficient records management during tax season is not just about keeping documents in order. It’s about creating a system that works for your business all year long. If you maintain accurate and organized tax records, you can avoid compliance issues and also make certain that you can quickly access the documents you need when it’s time to prepare for taxes.