Accurate, well-kept records help farmers plan for the future, but just how long should you keep specific records?
“Some records need to be kept for three years; some four; and others permanently,” says Henry English, director of the University of Arkansas-Pine Bluff Small Farm Program and the UAPB/USDA Risk Management Partnership.
All records of income or deduction expenses should be kept for three years after the filing date for income tax purposes. The Internal Revenue Service has a three-year statute of limitations on auditing a return.
Of course, keeping records for longer periods of time can provide historical data that can help in analyzing the business' profitability.
“If you filed Schedule J (Form 1040), Farm Income Averaging, you may have to prove taxable income for four base years,” says English. On the other hand, if you fail to report more than 25 percent of your gross income, the government will have six years to collect the tax or start legal proceedings. However, failing to file a return or filing a fraudulent return eliminates any statue of limitations for an audit by IRS.
“If you employ anyone in your business, you must keep all employment records for at least four years after the employment taxes are due or paid, whichever is later,” says English.
Records that show sales and purchase agreements for capital items, such as land, buildings and equipment should be kept permanently says English.
Keep a copy of all filed tax returns. Should you need it; a prior tax return can be obtained from the IRS center where you filed your return. Complete Form 4506 to get a copy of a prior return. There is a $23 fee for this copy of your return.
For help with farm records, farmers can contact English at 870-575-7246.
Carol Sanders is a writer/editor for the School of Agriculture, Fisheries and Human Sciences at the University of Arkansas-Pine Bluff.