September 29, 2017

In one not-for-profit article, we described why your organization needs to keep accurate records and how a good recordkeeping system can help prove that you are complying with various laws. (Click here to read the article.)

However, there are probably stacks of documents that come through your organization and you don’t want to file away every slip of paper. Fortunately, you don’t have to. The IRS does require you to keep certain essential documents on file. These records back up accounting entries, reported taxable income, expenses and deductions.For example, you must keep documents that support:

Gross receipts or the total income that your organization receives during the year. Records should show the amounts and sources.

Purchases and expenses, that your organization needs to carry on its programs, including any items resold to customers or members. These records also help your organization determine year-end inventory value.

Assets, including investments, buildings and furniture that your organization owns and uses in its tax-exempt activities. You need records for tax purposes and other reasons listed in the right-hand box.

Employment tax records, including information about pension payments, wages paid, tax deposits paid, as well as employees’ names, addresses, Social Security numbers and dates of employment. You also must keep copies of employees’ and recipients’ income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V).

The law generally does not require a special kind of recordkeeping system. You can choose any system suited to your organization’s activities that clearly shows income and expenses. An easy way to organize documents is by year and type of income or expense. The documents that can be used as supporting evidence varies, but generally include:

  • Cash register tapes,
  • Bank deposit slips,
  • Receipt books,
  • Invoices,
  • Credit card charge slips,
  • Canceled checks,
  • Account statements, and
  • Petty cash slips for small cash payments

Once records are collected, organized and filed, how long should you keep them? For IRS purposes, the rule of thumb: You must keep records for as long as you are able to amend a tax return, claim a refund, or the IRS can assess additional tax. This statute of limitations is commonly three years after the date a return is due or filed, whichever is later.However, there are some records that need to be kept longer. For example:

Permanent records. These include your application for tax-exempt status, the letter granting the status and the organizing documents, such as articles of incorporation, by-laws and amendments.

Employment tax records. Retain these records for at least four years after the date the tax becomes due or is paid, whichever is later.

Records for non-tax purposes. Even when the IRS time frames run out, you should keep some records until they are no longer required for grantors, insurance companies, creditors, or state agencies.

For more information on recordkeeping, consult with your tax adviser.

© 2017