Updated: Aug 3, 2020
How long should we keep tax records?
For tax purposes, the taxpayer who files tax returns every year reported all the income and has not done anything fraudulent, then the IRS rule of thumb is you can keep tax records for three years. However, every state might have different requirements. For the State of California, California Franchise Tax Board may request information for years from the taxpayer from the tax return due date or the date the tax return is filed.
Any other reason we should keep books and records?
There is a range of reasons to keep books and records. Whether you may need to keep them for insurance purposes or for getting a loan. Good records are useful to:
Identify sources of income. People may receive money or property from a variety of sources. Records help them determine the sources of income needed to separate business from non- business income and taxable from nontaxable income.
Keep track of expenses. This will help taxpayers identify expenses if they can itemize deductions on their tax returns.
Keep track of the basis of the property. This includes the original cost or other bases of the property and any improvements made.
Prepare tax returns. Up-to-date records help you to file quickly and accurately.
Support items reported on tax returns. People must keep records in case the IRS has questions about an item on their return. If the IRS examines their tax return, they may be asked to explain the items reported. Good records will help them explain any item and arrive at the correct tax with a minimum of effort. Without records, they may have to spend time getting statements and receipts from various sources. If they cannot produce the correct documents, they may have to pay additional tax and be subject to penalties.
Let us assist and set up an organization system specific to your business. Construction Cost Accounting is located in Irvine, CA 92614, but we are servicing, Los Angeles, Orange County, and San Diego.
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