In the Summer issue of The Professional Quilter, David Nagle wrote about the importance of keeping good business records. Considering the current economy, I think it’s very important to have an accurate picture of the operational and financial effectiveness of your business. Without it, we can’t make good business decisions.

Part of recordkeeping is knowing how long to keep your records. (I tend to keep too much for too long, so David’s advice is helpful to me.) Here are his tips:

Generally, you need to keep supporting records of all income, expense and credit items that you claim on your tax returns for the period of limitations the Internal Revenue Service requires for those items. This is defined as the number of years after your return was due within which time you are allowed to amend your return
or to claim a refund or credit. The information below is a summary of the IRS guidelines:

1. For most tax returns filed on time with no tax due, keep supporting records for
three years after the later of the filing deadline, extension deadline or actual
filing date.
2. If you had income that you should have reported (but did not) that was 25% in
excess of your gross income, keep records for six years after your final payment
was made.
3. Keep all employment tax records for the later of four years after the employment
tax became due or was paid.
4. Keep records to support any deduction for bad debt loss for seven years.
5. In cases of someone required to file a return (and does not) or in the case of
fraudulent returns, the IRS requires records be kept indefinitely.I suggest that
after the period of limitations for your supporting records has expired, then you
make copies on CD (or DVD) before destroying them. Then, store the discs in a safe
off-site location.

Now, what do you do with all the papers you’ve purged after following David’s advice?
It will take me too long to put them through the paper shredder, so I’ll have a
box ready for the next free shredding day in my county.

To read more of David’s article, which includes specifics on what records to keep
and a sample recordkeeping system, you can purchase Issue 104 or start a subscription
here.