If your company's financial records are computerized, it's essential to understand the IRS's complex guidelines for retaining electronic records.
The tax system generally requires companies to store copies of all computerized records for at least seven years (if not indefinitely) at an off-site location and to check them periodically -- once a year at least -- to make certain they remain accessible. "Companies with less than $10 million worth of assets are generally held to a less stringent standard, as long as they can come up with documentation to support their tax filings and related calculations," says John Cutler, a founding partner of Beers & Cutler, an accounting firm in Washington, D.C.
So you're under the bar? Don't breathe a sigh of relief too quickly. "It's very simple for private companies to pass that $10-million threshold without noticing," warns Cutler, "especially since the IRS factors in the assets of affiliated companies." You're also at risk if you change your computer system and fail to plan ahead.* * *