If you are like most business owners, tax time can equal stress time. However, the feeling you get when your taxes are finally filed and the dreaded task is completed is like no other. If your office clutter made filing difficult due to you having to hunt down the information you needed for your taxes, then it is time to streamline your office and get rid of excess papers that will just make next year’s tax time even more difficult. You, of course, need to hang onto important information you will need in the case of an audit or legal issue. Here is a guide to streamlining that office clutter while keeping vital information you need to keep.
1. Scan All Receipts for Items and Services You Claimed as Deductions and Get Rid of the Originals
Tax professionals often advise business owners to keep a full three to four year’s worth of any tax-related information on hand. However, you may want to keep documents even longer than this, because while in most circumstances, the IRS can audit you up to three year’s after a tax return is filed, if they suspect that you grossly understated your income, they can audit you as far back as six years. In addition, there are some situations when they can audit any tax return you ever filed for your business, such as when they suspect tax fraud.
Of course, if you save every receipt and document you need for a potential audit forever, that would take up precious space in your office (or it may already be taking up that space). Instead, scan each year’s receipts, and then just store a digital copy of them. The IRS has accepted digital copies of receipts since 1997, as long as you can print out a copy if needed. Back them up, of course, on an external hard drive and store it in a safe place. Then, place those originals in a bin you will soon take to the shredder.
2. Know What Items You Need to Keep and For How Long
Aside from digital copies of receipts for items or services you claimed as business expenses, there are a few vital documents you should also keep in case of an audit or employee lawsuit. Any other papers that you don’t need handy to help you conduct your business are just taking up space and can simply be tossed in that shredding bin, as well.
Here are documents you need to save for specific government agencies and how long to save them:
EEOC and FLSA Requirements
- Three years worth of payroll documents. This includes copies of employee W-2s, contractor 1099, and W9s and copies of employee pay stubs.
- Full employee files for one year after they quit or are terminated to meet and their payroll documents for an additional 3 years after they leave the company. Separate any medical files from other employee files to meet HIPAA requirements and keep these files for four years instead of three. EEO-1 documents should also be separated from main employee files.
- Papers used in an employee demerit or seniority system until one year after the system in de-activated.
- Employee insurance and savings account information the full time the system is in place and one year after it ends.
- Two years worth of employee evaluations, wage agreements, and bargaining records.
These documents will help you if an employee ever were to file an employee discrimination lawsuit. Check to see if any state regulations vary from federal ones and if they require you to keep documents longer. Any documents that surpass the time limits specified can be placed in the shredding bin. If an employee has filed a discrimination lawsuit, then keep his or her record indefinitely to be safe.
Information for Tax Purposes:
- Employment tax records for four years after payment.
- Copies of your filed tax returns. There is no guideline for how long to save these, so use your best judgement and look to save about the last six.
- Copies of payroll documents that surpass the period required by the EEOC and FLSA by about six years.
In addition, the USCIS requires I-9 forms to be stored three years after an employee is hired or one year after they leave the company, with the longer period of time in mind. Also, check with your insurance agencies, banks, and creditors to see what records they require you to keep and how long. They may require you to keep accident reports, payment statements, and various other documents.
Once you have everything you need to keep stored in either paper form or digital form, set the rest aside, and finally, take all unneeded documents to a secure shredding service. Never throw any of these documents directly into the trash or a recycling bin (don’t worry if you are eco-conscious; shredding services often recycle their shreds). Sensitive and personal documents, especially employee health information and I-9 forms, that get into the hands of anyone who is not authorized to have the information could leave you facing hefty fines and even jail time for not protecting this personal information. For more information about having these records destroyed safely, visit websites like http://www.vitalrecordscontrol.com.