Running a business can be confusing in many aspects. One common conundrum is in understanding how long it is necessary to keep documents around. With most businesses, files pile up fast and storage may run low. No need to worry—here’s a guide to legal files that you should hold onto, as well as an incremental timeline.

1. Documents to Keep Forever

Some documents should never be thrown away. These include the following:

• Patents
• Articles of Incorporation
• Licenses and permits
• Copyrights and trademarks
• Capital stock and bond registers
• Tax returns
• Deeds
• Mortgages
• Property records

2. Documents to Save for Seven Years

The following documents are definitely important, but you don’t need to keep them for the rest of your life. For seven years, save documents relating to the following:

• Sales tax returns
• Purchase orders
• Invoices to customers/from vendors
• Personal property tax returns
• Accident reports/claims (that are settled)
• Logs for automobiles
• Cash books
• Bills of lading
• Inventory reports
• Employee personnel records post-termination
• Employment tax reports
• General journals
• Payroll records

3. Documents to Store for Three Years

Some items aren’t as important as those that are kept permanently or those kept for seven years, but they still could be needed to refer back to for a while. A number of these documents are bank-related, while others have to do with inventory and more. What documents to save for three years include the following:

• Logs of any physical inventory
• Vouchers relating to petty cash
• Bank reconciliations
• Expired policies for insurance
• Correspondence in general
• Duplicate deposit slips from the bank
• Working papers or internal audit reports

4. What to Hold Onto for Just One Year

You may be glad to discover that certain documents only need to be kept for one year. Some of these include the following:

• Stockroom withdrawal forms
• Notebooks that stenographers have used
• Any purchase orders (excluding those that are part of purchasing department copy)
• Personnel employment applications

Most of these items aren’t required for tax purposes, so even if you were to be audited, the IRS would not need them for any reason. You can go ahead and toss these items without fear.

Are you still confused about how long to keep certain documents, or would you rather not waste time dealing with these things yourself? Contact Allen Barron today at (866) 493-5400 for professional, all-inclusive tax help with your business.

Happy New Year! REMINDER: All W-2 and 1099 forms are due by January 31st, 2012!

When someone completes work for your business, are they an employee or an independent contractor? Do you issue them a W-2 or a 1099 form?

This is a challenging question faced by many business owners due to the fact that there is no definitive guidance on the issue. The IRS and EDD will look at each case on an individual basis taking into account several factors. Having workers classified correctly is extremely important, given the fact that some independent contractors are now reporting businesses so they can be re-classified as employees and receive unemployment benefits.

How can a business protect itself? Ultimately, the government is looking at control. How much control is the worker able to exercise over their own work? The questions that will be asked during an audit will be:

Does the worker own their own entity? And their own business license?

Does the worker advertise for other clients?

Does the worker have other clients?

Does the worker have the opportunity to control their profit/loss?

Has the worker invested in their business?

How much instruction and training was given to the worker?

Does the worker have control over how they perform the work (hours, location, etc)?

Do the parties have a written agreement between them defining their relationship?

The consequences of misclassification are that your business may be audited. If the audit results find that the workers were actually employees, then your business would be liable for penalties and interest, as well as, potential workers compensation fraud issues. If you believe that you may have employees classified as independent contractors, we can help you apply for an IRS safe harbor program to prevent the IRS from retroactively classifying your workers as employees.

If you would like an assessment of whether you have employees or independent contractors, please call Janathan L. Allen, APC at (866) 493-5400 for a consultation. In the event that your business uses independent contractors, you should have a written agreement that details the relationship of the two parties. Our firm is experienced in drafting employee and/or independent contractor agreements. We also provide assistance for businesses currently under audit for misclassifying workers.

As 2011 comes to an end, we would like to remind you of the importance of year-end tax planning. If you would like Allen Barron to assist with your tax planning or calculating your estimated tax payments, please contact our office ASAP. Some year-end issues to consider are listed below:

W-2 forms, 1099s and W-9 forms.  Please be aware that all W-2 forms and 1099 forms are due January 31^st, 2012.  Please be sure to have your W-9 forms completed by vendors and contractors by year-end.

Year-End Inventories.  Don’t forget to include office and store supplies in your year-end physical inventories.  You will need the year-end inventory for your business property tax due in April 2012.

Tax Planning.  We can provide tax planning to minimize your 2011 tax liability and potential tax hikes in 2012. As you may know, deductions and tax credits often have a limited life-span and Congress typically includes a sunset provision or expiration date for certain tax breaks. There are several tax breaks, which will expire at the end of 2011 and will not be available for 2012, unless Congress passes a new law to extend these breaks.

California LLC/CORPs.  California LLCs and Corporations (with a 12/31 year-end) have an annual minimum payment of $800.00 which is due by April 15^th of the current tax year (unlike individuals who pay taxes on April 15^th for the previous tax year). For example, if you have a CA LLC, there was a minimum $800 payment due 4/15/2011 for the 2011 tax year. If you haven’t already, please make sure that you have paid your $800 for 2011 as soon as possible, to avoid additional penalties and interest.

Estimated Tax Payments for Individuals or Entities.  In most cases, an individual or entity is required to make federal estimated quarterly tax payments if a tax liability is expected of at least $1,000 or more for the 2011 tax year (after subtracting your withholdings and credits).  Therefore, if in 2010 you owed the IRS more than $1,000 (or the CA FTB more than $500) and your economic circumstances (income, expenses, withholdings, employment, sale of property, etc.) have not changed substantial, you would most likely be required to make estimated tax payments.  To avoid penalties and interest, you must have paid all of your estimated tax payments according to the schedule below: 

1^st payment                  April 18, 2011

2^nd payment                 June 15, 2011

3^rd payment                 September 15, 2011

4^th payment                 January 17, 2012 

Although as an individual, your final 2011 estimated tax payment is not due until January 17, 2012, any payments made to a state agency in 2011 may be deducted on your federal tax return and thus reduce your federal tax liability. Therefore, we advise you to make your final 2011 estimated tax payment to the state prior to midnight on December 31, 2011.

Please contact our office at (866) 493-5400 to schedule a complimentary initial consultation for assistance with any of the aforementioned year-end issues.

Monday, December 26th, 2011 is a national holiday in recognition of Christmas.  Please take this day into consideration as your prepare your payroll information.  The Federal Reserve Rules state that if a national holiday falls on a Sunday, the following Monday will be recognized for this holiday.  However, if the holiday falls on a Saturday, there will be no recognition of any other day.

Monday, January 2nd, 2012 is a national holiday for New Years.  Please take this day into consideration as our prepare your payroll information.

For those companies that date their checks for the first of the month, you have a decision to make:  Do you want the system to roll your check date backwards to 2011, or do you want your check date ot be January 3, 2012?   Make sure you notify your accountant or payroll service provider with the date your choose.  Your decision will reflect on your payroll taxes for the 2011 tax year.

Monday, January 16th, 2012 is a national holiday (Martin Luther King Day).  All banks, government agencies, schools, etc. will be closed.  Your payroll date may be effected due to the holiday.  Please check with your accountant or payroll provider.

Monday, February 20th, 2012 is also a national holiday (President’s Day).  Again, your payroll date may be effected due to the holiday.  Please check with your accountant or payroll provider.

Allen Barron, Inc. offers these timely reminders to our accounting clients.  If you need assistance with your monthly, quarterly or year-end accounting (including payroll), please give us a call at (866) 493-5400 for a complimentary initial consultation with one of our knowledgable accountants.