When advising clients on record retention policies, these questions are commonly brought up: What documents should I keep? How long should I keep them? Is one year long enough? Ten? Surely I don’t have to keep them indefinitely, do I? Let’s address these questions with tip two.
TIP TWO: The Where, When, How and Why of Storing Documents
First off, you need to store your documents in a safe place. If everything is a hard copy, make sure it’s filed under lock and key. If it’s digital or on the cloud, make sure it’s encrypted. The standard length of time to keep records that support income and deductions (this would include sales invoices, vendor bills and payments, payroll records and bank statements) is seven years. Retaining such documents for seven years will help you in the event of a loss carry back or an IRS or other governmental agency examination. Not all documents are subject to this rule and there are other types that should be stored permanently. These include deeds, construction blueprints, tax returns and other documents that support the cost basis in inherited or purchased property.
Keep in mind that there are many reasons other than tax audits to have good documentation, including insurance claims, lawsuits, divorce, and if you decide to sell your business in the future.
In next month’s column, I’ll provide some words to the wise for when your farming hobby might be considered a taxable business in the eyes of the IRS.
column by STEVEN E. CRISMAN
BIO: Steven Crisman is the managing partner of Cross, Fernandez & Riley, LLP’s (C/F/R) Winter Haven office and leads their Agriculture Practice Group. He primarily serves the agriculture, manufacturing, warehousing and distribution industries. He has specific experience with citrus growers, cattle ranchers, citrus and other horticultural nurseries, citrus harvesters and other support industries as well as watermelon, blueberry and other growers. In addition, Steve provides comprehensive tax and estate planning, attestation and business succession planning services.