What records should your veterinary practice keep, and how long should you keep them? There are several categories of records that are important to a practice, some for internal purposes and some for tax returns and other government requirements. Let’s take a look at these by category.
- Tax records. First, consider the records you need to substantiate your annual income tax return. The IRS says that you must maintain adequate records, to support the items of income and expenses that you claim. That means you must be able to produce receipts, invoices, cancelled checks, or banking records supporting expense items. Similarly, you should keep sales slips, invoices, or bank records to support income items.
- Accounting records. Most practices have adequate accounting systems to capture routine transactions or use the services of an outsourced accounting company to ensure the processes are done correctly and legally, but not for nonroutine transactions such as the purchase of depreciable assets. When you buy a car, computer, or piece of office equipment, be sure to file all purchase documents, assign an inventory number, and immediately set up a depreciation schedule.
- Travel and entertainment expenses. Good recordkeeping for travel and entertainment expenses is essential. Although the rules can be complex, in general, you should capture where, when, who, how much, and the business purpose for each expense. A well-designed standard expense report form can help ensure that your records contain all the required information.
- IRS audits. Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or seven years after the tax year). For that reason, you should keep most income tax records for seven years. If you are based in Canada, and you think you have under or over declared on your tax return, consider contacting Canadian Tax Amnesty support to help you through the process.
- The IRS requires records relating to employment taxes to be kept for at least four years after the date of the return or the date the tax was paid, although here again a seven-year rule is safer.
- Corporate records. Every incorporated practice (or Limited Liability Company) needs good corporate records, including documents associated with forming the company, bylaws, business licenses, and minutes of all board meetings. Shareholder records should include stock registers and records of all share issuances and redemptions. Also, keep copies of all contracts and leases. Finally, don’t forget current and terminated employee files, and records of employee pension or profit-sharing plans. Most corporate and employee pension plan records should be kept indefinitely. This information doesn’t have to be held in paper form. You can put this on the cloud and pull the data whenever you want it. If this is something you’d be interested in, you could look into this comparison between Xero and Quickbooks to get yourself started.
- Computer recordkeeping. The IRS has established a series of rules and recommendations concerning how electronic records must be maintained. Generally, such records should contain the same information as paper records and should be kept for the same length of time.
Now is a good time to start planning for the rest of 2012.