A common question we receive from clients is which records they need to keep and how long do they need to keep them.

Let's start with how long you need to keep financial records. The safe answer is to keep everything for 7 years. Even though the IRS generally audits you for a period of 3 years and the State of Wisconsin generally reviews 4 years. Should it be determined that fraud was committed each agency can go back an additional 3 years. So, in the worst case scenario, Wisconsin could go back 7 years and that's how long I recommend retaining records.

Now you may be saying that you would never commit fraud and to be honest it's rare to see an audit proceed in that direction. The trouble is no one ever has clearly defined what fraud is. This means that even with the best intentions poor record keeping combined with underreporting of income could cause an agent to conclude that you are committing fraud. It's best to be on the safe side and retain your records 7 years. If storage space is a concern and you have a good record keeping system you could get by with 4 years of information.

Now the question becomes what should you retain? I feel it is important to retain source documentation like receipts and items like tax returns and bank statements. I know it seems cumbersome, but without a receipt, how would an agent know if the item you purchased from a place like Target was Òordinary and necessaryÓ to your business. The receipt is the only thing you have at the end of the day to demonstrate an expense was for business and not your personal use.

The important thing is to be on the safe side and ask if something needs to be retained. Feel free to call us at 414-272-3968 and we can assist you in designing an accounting system that will help you cruise through an audit.