How long to keep tax records as a freelancers or Small business?
When we were working for ourselves keeping tax records is one thing that most of us forget. So how many years we should keep our tax filing and other revenue records?
The ground rules: You should keep all your tax records for at least the three years the IRS has to audit you and assess any additional taxes. The IRS has six years if you understated your gross income by more than 25%. There is no statute of limitations if you failed to file a return or filed fraudulent returns.
Tax returns and supporting documents: At the minimum, keep them three years. I like keeping the tax returns but not the supporting documents forever for the very rare times a governmental agency sends a notice out saying you haven’t filed a tax return you in fact filed years ago.
Yearly income: Keep your last pay stub to see if your W-2 accurately reflects your income. Keep a record of every check you receive, especially the unusual ones that you’re more likely to forget. Record what comes in be it free lance or wage income, dividends and interest, rents, alimony, social security, unemployment or gifts and check it against your W-2′s, 1099′s and K-1′s.
Yearly expenses: You need to know how much you spent for deductible items like charitable contributions, mortgage interest, real estate taxes, medical expenses, alimony, child care expenses, and business/ job expenses. Keep sales slips, invoices, receipts, and canceled checks or other proof of payment. The more records you keep, the more likely you’ll be able to be accurate on your tax returns.
For depreciable assets, keep records for the length of depreciation plus three years. For cars and computers that’s five years for the depreciation period plus three more or eight years. For other equipment, office furniture and library expenses that seven years plus three or ten. For buildings, that’s 40 years plus three or 43. If you sell any of these assets before the end of the depreciation period, keep your records for at least three years after the completion of the sale.
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