Every year around this time, an owner slides a shoebox, a folder or a phone full of photos across the table and says, “I kept everything.” And I believe them. The problem is that keeping everything and keeping the right things are two different jobs.
So here is what I tell every owner I sit down with, before year-end gets busy: keep the receipt. Then keep the reason. A piece of paper with a total on it is a start. A record that explains what you bought, how you paid and why the business needed it is what actually protects you.
Below are the five things I walk through with owners about business recordkeeping. None of it is complicated. It just needs a habit.
1. A receipt alone is not a record
When I look at an expense, I am asking five quiet questions: who was paid, how much, how it was paid, when it happened, and what it was for. The IRS describes supporting documents for expenses in much the same way: they should show the payee, the amount paid, proof of payment, the date incurred, and a description that shows a business purpose (IRS, What kind of records should I keep).
A faded restaurant slip with a total covers maybe two of those five. Add a one-line note — who you met and what you discussed — and it starts to become a record. That note takes ten seconds when it happens and is nearly impossible to reconstruct eighteen months later.
2. Your bank statement is not the receipt
This is the one I hear most: “It’s on my bank statement, so I’m covered.” A statement is good proof that money left your account. It usually does not tell anyone what you bought or why. The IRS notes that for purchases and expenses, a combination of documents may be needed to support all the required details (IRS, What kind of records should I keep).
In practice, that means pairing the payment (the statement, the card record, the canceled check) with the document that describes it (the invoice or itemized receipt). In your books, the two should point to each other. When they do, a question from anyone — a lender, a buyer, the IRS — takes minutes instead of a weekend.
3. Three years is the default, not the whole rule
Owners often ask me, “How long do I have to keep this stuff?” The short answer most people know is three years, and for many income tax records that is the general period. But the IRS lists longer periods in certain situations: six years if you did not report income you should have and it is more than 25% of the gross income shown on your return, seven years if you file a claim for a loss from worthless securities or a bad debt deduction, and indefinitely if you did not file a return or filed a fraudulent one (IRS, How long should I keep records).
My own habit is simple. Do not decide by memory what can be shredded. Decide by year, by category, and with the return for that year in front of you.
4. Payroll records run on their own clock
If you have employees, your payroll file is not on the same schedule as your general receipts. The IRS says to keep all records of employment taxes for at least four years after the date the tax becomes due or is paid, whichever is later (IRS, How long should I keep records). The IRS also has a dedicated page on what those employment tax records include (IRS, Employment tax recordkeeping).
At PRC, payroll records live in their own folder with their own retention date. That separation is boring, and boring is exactly what you want from payroll.
5. Asset records stay until the asset is gone — and then some
The laptop, the truck, the equipment, the office build-out: these are the records owners throw away too early. The IRS says to keep records relating to property until the period of limitations expires for the year in which you dispose of the property (IRS, How long should I keep records). For assets, supporting documents should show when and how you acquired the asset, its price, improvements, depreciation, how it was used, and what it sold for (IRS, What kind of records should I keep).
That means the purchase invoice for something you bought years ago may still matter long after the asset has stopped working. Keep a simple fixed-asset list with the documents attached, and update it whenever something is bought, improved or sold.
What I’d do before December 31
You do not need a new system this month. You need one hour. Open your books, pick your ten largest expenses of the year, and check that each one has a payment record, a document that describes it, and a short note on its business purpose. Then look at your fixed-asset list and your payroll folder. If those three areas are in order, year-end gets much calmer.
And going forward, make the reason part of the habit. Snap the receipt, add one line, and let your bookkeeping match it to the payment every month. That is the whole trick.
How PRC can help
PRC Accounting & Taxation is an accounting and tax firm in Greenville, North Carolina. We handle monthly bookkeeping, payroll and tax preparation for U.S. businesses, and white-label support for CPA firms. Part of our monthly routine is matching documents to transactions and keeping records organized by year and category, so you are not sorting a shoebox in March.
If you want a second set of eyes on your records before year-end, book a free 30-minute consultation. You can also call us at (984) 379-7823 or email office@prcaccounting.com.
— Hafiz M. Riaz, FCCA (UK), Founder & CEO, PRC Accounting & Taxation LLC
This article is general information, not tax or legal advice for your specific situation.
Sources
- IRS – What kind of records should I keep
- IRS – How long should I keep records
- IRS – Employment tax recordkeeping
- IRS – Recordkeeping
This article is general information, not tax or legal advice for your specific situation. Confirm dates and rules against the current IRS source before you rely on them.