As a business owner, you may feel inundated with paperwork and documentation. While it could be tempting to disregard some or all of this information, doing so can create significant problems with the IRS. These records are often necessary to properly calculate the taxes your business owes and to substantiate the representations you make to the IRS.
5 Ways Recordkeeping Can Be the Root Cause of a Tax Problem
Despite the importance of good recordkeeping for business owners, many people fail to handle this responsibility properly. There are several ways in which business owners can find themselves in trouble with the IRS as a result. The following are five examples:
- Failing to choose a recordkeeping system that suits your business. While the IRS typically does not require special kinds of recordkeeping systems, the type of business you are in does affect the type of records you need to keep.
- Failing to clearly show your income and expenses within your recordkeeping.
- Failing to keep your records for the appropriate amount of time. The length of time depends on the action, expense, or event that the record pertains to. Records must be kept for as long as they are needed in order to prove the income or deductions on a tax return.
- Failing to keep employment tax records for at least four years.
- Failing to keep the information contained in the supporting documents for your business, such as those related to your purchases, sales, payroll, and other transactions.
If you are a business owner facing an IRS tax problem, it is important to seek legal guidance as soon as possible. We can help. Learn more about the past experiences of our clients by reading our client testimonials today.