NFIB

Tax-Wise Guide to Retirement Plans
05/ 03/ 2004

What to hold on to
by Milton Zall

Besides tax purposes, you should keep records for insurance purposes, for getting a loan, and to keep track of how your business is doing.
Here's the types of documents you need to keep:

1. Those that identify sources of income. Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross income. You need this information to separate business from non-business income and taxable from non-taxable income, and to distinguish profitable from non-profitable activities.

2. Those that keep track of expenses. You may forget an expense unless you record it when it occurs. You can use your records to identify expenses for which you can claim a tax deduction. This will help you determine if you can itemize deductions on your tax return.

3. Those that keep track of the basis of property. You need to keep records that show the "basis" or cost of your property. This includes the original cost of the property and any improvements you made. When you sell the property, your records will enable you to determine if you incurred a loss or realized a gain.

4. Those that support items reported on tax returns. You must keep records in case the IRS has a question about an item on your return. Good records will help you explain any item and arrive at the correct tax with a minimum of effort.

How long?

Keep these for three years from the date your tax return was filed: records such as receipts, canceled checks and other documents that support an item of income or a deduction appearing on your tax return should be kept until the statute of limitations expires for that return. Also, copies of your tax return.

Keep for four years: all employment tax records.

Keep indefinitely: property records, since you may need them to prove the amount of gain or loss if the property is sold.

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This article originally appeared in the March/April 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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