How Long Should You Save Your Records

Home daycare businesses must practice not only good record keeping, but appropriate record retention.  Holding on to clutter is never a good thing. However, if a business discards its records too soon and gets audited by the Internal Revenue Service, it could prove to be a very expensive mistake. How long should a daycare business hold on to records?

In general, daycare businesses must keep their records for as long as they are important for any tax law. This is usually the later of the following dates:

  • 3 years from the return due date or the date filed.
  • 2 years after the tax was paid.

It is, however, advisable to follow the guidelines for record retention recommended by Kathleen Kansfield, CPA and Martin Freeman, CPA for home daycare businesses:

For a minimum of 7 years keep records of:

  • Bank statements
  • Canceled checks
  • Deposit receipts
  • Payment receipts
  • Attendance reports
  • Bills

For a minimum of 4 years, hold on to:

  • Payroll records

Never throw away:

  • Copies of your income tax return
  • Audit reports from the IRS and any related correspondence
  • Information related to home purchase and improvement

If the IRS does happen to audit your tax return, most adjustments occur in the following areas and require the following records:

  • Gross receipts: Bank accounts and Federal food program reimbursement records
  • Food expenses (remember that you cannot deduct food for your family, this is a nondeductible personal expense)
  • Food reimbursement
  • Automobile expense: automobile mileage diary
  • Business use of the home: square footage of your entire residence and portion used for your business; daily records
  • Other expenses:  receipts for supplies and miscellaneous expenses
  • Independent contractor versus employee issues (with regard to withholding or paying taxes on compensation)

The Internal Revenue Service‘s “Child Care Providers Audit Technique Guide” provides solid guidelines for record keeping and retention. Record keeping can be simplified through the use of childcare software such as ProCare or Daycare Information System Plus which helps businesses manage, store, and retrieve accounting and business information.

About the Author

Carla Snuggs is a freelance writer from Southern California. She holds a Bachelor of Arts degree in Family and Consumer Science with an emphasis in child development and also holds a Master of Library and Information Science degree.

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