The CCPA: Record Retention Guidelines
Record Retention Guidelines
As we head into tax season (friendly reminder: start scanning all of your tax documents and uploading them to your Harmony client portals!), one of the most common questions we receive from clients is “How long do I have to keep (insert tax document type) for?” For clients who like original source material, you can read all about the requirements in spellbinding IRS publications like Rev. Proc. 81-46, 83-6, 97-22, 98-25, and, my personal favorite, IRC Section 6001. For our friends and clients who aren’t in search of a melatonin substitute, however, we've outlined retention periods for different types of records for businesses:
Tax Returns, Legal Correspondence, Audit Reports, etc.: Keep for 7 years after liquidation of the entity.
Bank Statements, Sales Records, Other Revenue-Related Records: Retain for 6 years.
Canceled Checks, Paid Vendor Invoices, Employee Payroll Records: These should be kept for 3 years.
Inventory, Depreciation Schedules, Other Capital Asset Records: Inventory records for 3 years; Depreciation schedules and other capital asset records for the tax life of the asset plus 3 years.
Partnership Agreements, Operating Agreements, Appraisals: These should be retained permanently.
For individual taxpayers, the retention requirements are somewhat different. The full guide can be found in IRS Publication 552, but key retention guidelines include:
Retain records that support income, deductions, and credits shown on tax returns until three years from the date the return was filed or two years from the date the tax was paid, whichever is later.
For some situations, such as when a return omits more than 25% of gross income, keep records for six years.
If a claim is filed for a loss from worthless securities, keep records for seven years.
For documents like purchases of large assets (your house, stocks, capital improvements to houses, etc.), we recommend keeping them permanently, if possible.
Retain employment tax records for at least four years after the date the tax becomes due or is paid.
These retention guidelines should be counted from the later of the tax return due date or the filing date of the return. Organized, complete digital records are generally an acceptable substitute for the paper versions - and will stay intact for much longer than faded receipts.
tl;dr
The minimum length of time you have to keep a particular record is specific to the type of record. Almost everything has to be kept for at least 3 years after the date of filing of a return (let’s call that 5 years from transaction date, to be safe), but we recommend that you err on the side of caution and approach your tax recordkeeping like you want to win this year’s superlative as the dream Harmony CPA client: be organized, keep thorough records, and keep them organized and completely intact. If you can digitize them and keep them forever, you’ll always be in great shape.
Journal Entries
January 2024
Some Price Relief on the Horizon:
Over the past two years, a key factor that previously drove up mortgage rates is now aiding in their decline. The spread between 30-year fixed mortgage rates and benchmark Treasury yields, which had widened, is now narrowing, reaching its lowest point since March. This contraction, coupled with a decrease in Treasury yields, has resulted in a significant drop in mortgage rates, down to 6.62%. This trend is providing relief to potential home buyers, mortgage lenders, and real estate agents, although the spread remains above its historical average. Factors influencing this shift include changes in investor demand and expectations of the Federal Reserve's interest rate policies. With Jay Powell and the Fed signaling that rate cuts are likely in 2024 we hope that we have seen the peak of mortgage rates.
Corporate Transparency Act
We sent out a separate missive about this new filing requirement but given that Harmony serves many small business owners it’s worth mentioning here. The Corporate Transparency Act (CTA), effective January 1, 2024, mandates corporations, limited liability companies, and certain other entities in the U.S. to disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Aimed at curbing illicit activities like money laundering and tax evasion, the CTA requires these entities to report details about beneficial owners—who have substantial control or own at least 25% of the entity. The Act applies to both new and existing businesses, with specific deadlines for reporting. Exemptions exist for certain businesses, and non-compliance can result in severe penalties. Please reach out if you’d like us to handle this request for your business.
Tax Timelines
The tax team is working diligently to ensure the timely completion of your returns in line with the expert standards that Harmony applies to all returns we prepare. The IRS does not begin to accept filings until January 29th, so the business tax prep process is compressed into a short 6 week period. We are targeting completion of your business returns prior to the March 15th extension due date and will work diligently to ensure this happens. Personal returns should follow for those business owners while those taxpayers who receive their income from a W-2 will be filed as soon as we get their information. Thanks, in advance, for your timely cooperation with any information requests.