If you are a fairly new business owner, you may be wondering how long to keep business tax records. This article will explore the answer to this question and also help you with some other great information and tips for tax-time. If you've successfully started a new business recently, congratulations! Now comes the hard part - keeping it afloat. If your business is going to achieve overall success, however, a huge percentage will depend on how well you manage your books. This in turn will help you when it comes time to do your taxes. Keep in mind that using a professional in this department is one of the smartest business decisions you can make, especially in the formative years of your business. A good financial advisor can help you to make or break your business. Ok so the short answer to how long to keep business tax records, according to the IRS, is 3 years from the date you filed your last return. However, they also state that they "generally will not go back more than 6 years" when performing an audit. Most lawyers will tell you to keep any and all business records for 7 years, to keep yourself safe. There is a statute of limitations for collections from the IRS of 10 years. As you can see, this presents an issue of varying opinion. If you like to err on the side of caution, you may want to keep your records for 7 years (or even 10 if you're really cautious). But the IRS themselves say 3 years should be sufficient, so it's really a matter of what type of risk level you're comfortable with. Now let's talk about the kind of things that draw the IRS's attention to you for an audit, so that you don't put yourself in an unnecessary (and unpleasant) situation.

There are few threats quite as scary as an IRS audit to a new business owner. In fact it is quite probable that is the reason behind finding this article of interest, in the first place. If so, you can exhale and breathe normally for a while, because statistics show your chances of that are extremely minimal. Even still, there are a few things that put up a red flag, demanding closer scrutiny by a human agent - instead of the computer program that flags them. Income brackets between $200,000 and $1 million or more have a significantly higher chance of being audited, but even they have a relatively small chance of an audit. Only 1 out of 100 small businesses are audited each year, and probably the number one reason is disproportionate deductions and expenses when itemizing. Small businesses are expected to have itemized deductions, however, they should be legitimate and not ridiculously high in proportion to the income or profit margin of the business. Little things such as rounding your figures up or down instead of keeping it real with actual, exact numbers whenever possible, can actually trigger a red flag. You're not expected to make a lot of money in your first few years, but it should show some increase each year once you get going. If your business shows a loss year after year, it will send a red flag up. Typically, you're allowed only 3 out of 5 calendar years to report a loss, as a business. These represent the most common reasons for a business audit.

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