Keep Employment-Related Tax Records for at Least 4 Years

Keeping good records not only makes tax filing easier and faster, but it can also help employers monitor the progress of their business, prepare financial statements, and support items reported on employers' tax returns. Below are 3 simple tips from the IRS to help employers get organized:

1. Save Certain Business Records

The following are some of the types of records employers should keep:

  • Gross receipts are the income received from a business. Keep supporting documents that show the amounts and sources of gross receipts.
  • Purchases are the items bought and resold to customers. Supporting documents should show the amount paid and that the amount was for purchases.
  • Expenses are the costs incurred (other than purchases) to carry on business. Supporting documents should show the amount paid and that the amount was for a business expense.
  • Assets are the property, such as machinery and furniture, that are owned and used in a business. Records are needed to compute the annual depreciation and the gain or loss when the assets are sold.
2. Keep Employment Tax Records
The following information should be available for IRS review:
  • Employer identification number;
  • Amounts and dates of all wage, annuity, and pension payments;
  • Amounts of tips reported;
  • The fair market value of in-kind wages paid;
  • Names, addresses, social security numbers, and occupations of employees and recipients;
  • Any employee copies of Form W-2 that were returned as undeliverable;
  • Dates of employment;
  • Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments the employer or third-party payers made to them;
  • Copies of employees' and recipients' income tax withholding allowance certificates;
  • Dates and amounts of tax deposits;
  • Copies of returns filed;
  • Records of allocated tips; and
  • Records of fringe benefits provided, including substantiation.

3. Store and Organize Records
Business owners should generally keep all employment-related tax records for at least 4 years after the tax is due, or after the tax is paid, whichever is later. The length of time other documents should be kept depends on the action, expense, or event the document records.

The IRS doesn't require any special method to keep records, but it's a good idea to keep them organized and in one place. Among other things, this will make it easier to prepare and file a complete and accurate return.

Our section on Employee Records and Files features information on other federal recordkeeping responsibilities for employers.

Topics: Tax Recordkeeping Tips for Employers

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