Why You Should Keep Receipts, Expenses, and Proof of Payments for 7 Years
One essential aspect of financial management as a business owner or self-employed individual is maintaining thorough records of your transactions, including receipts, expenses, and proof of payments. At M7 Tax, we emphasize the importance of holding onto these documents for at least seven years. Here’s why this practice can be a lifesaver when it comes to dealing with the CRA and ensuring your business remains in good standing.
The 7-Year Rule: A Safety Net for Your Business
While the CRA typically has a 3-year window to audit your tax returns, they can extend this period under certain circumstances, such as suspected fraud, unreported income, or significant errors. For these reasons, we recommend keeping all relevant financial records for a minimum of seven years. This timeframe covers the standard audit window plus additional years in case of extended audits.
What Records Should You Keep?
To protect yourself and your business, it’s important to retain a comprehensive set of financial records. Here’s a quick list of what you should keep:
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Receipts: Every purchase related to your business, no matter how small, should be documented with a receipt. This includes everything from office supplies to large equipment purchases.
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Invoices: Keep copies of all invoices you issue to clients, as well as any invoices you receive from vendors and service providers.
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Proof of Payment: Bank statements, credit card statements, and payment receipts serve as proof that your expenses were paid and can be essential during an audit.
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Contracts and Agreements: Any contracts or agreements related to your business dealings should be stored securely.
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Financial Statements: Balance sheets, income statements, and cash flow statements are crucial records that provide a snapshot of your business’s financial health.
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Tax Returns and Notices: Retain copies of your filed tax returns, as well as any notices of assessment or reassessment from the CRA.
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Payroll Records: If you have employees, keep records of their wages, benefits, and tax withholdings.
What Records Should You Keep?
To protect yourself and your business, it’s important to retain a comprehensive set of financial records. Here’s a quick list of what you should keep:
-
Receipts: Every purchase related to your business, no matter how small, should be documented with a receipt. This includes everything from office supplies to large equipment purchases.
-
Invoices: Keep copies of all invoices you issue to clients, as well as any invoices you receive from vendors and service providers.
-
Proof of Payment: Bank statements, credit card statements, and payment receipts serve as proof that your expenses were paid and can be essential during an audit.
-
Contracts and Agreements: Any contracts or agreements related to your business dealings should be stored securely.
-
Financial Statements: Balance sheets, income statements, and cash flow statements are crucial records that provide a snapshot of your business’s financial health.
-
Tax Returns and Notices: Retain copies of your filed tax returns, as well as any notices of assessment or reassessment from the CRA.
-
Payroll Records: If you have employees, keep records of their wages, benefits, and tax withholdings.
The Benefits of Keeping Detailed Records
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If the CRA decides to audit your business, having all your receipts and records organized will make the process smoother and less stressful. You’ll be able to provide the necessary documentation quickly, reducing the likelihood of penalties or additional taxes.
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Detailed records ensure that your financial reporting is accurate, which helps you make informed business decisions. This accuracy also means your tax filings are more likely to be correct, reducing the risk of triggering an audit.
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By keeping detailed records, you can maximize your tax deductions. Every legitimate business expense is a potential deduction, but without the proper documentation, you may miss out on these savings.
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In the event of a dispute or legal issue, having a well-documented paper trail can protect your business. Whether it’s a contract dispute or a CRA inquiry, solid records are your best defense.
Conclusion: Don’t Leave Your Business Vulnerable
At M7, we understand the challenges of running a business and the importance of staying on top of your financial responsibilities. Keeping your receipts, expenses, and proof of payments for seven years is a simple yet effective way to safeguard your business against potential CRA audits and reassessments.
By following this M7 Tax Tip, you’re not only protecting yourself from future headaches but also ensuring that your business is built on a foundation of accuracy and compliance. Don’t let poor record-keeping jeopardize your success—stay organized and keep your records for seven years to secure your peace of mind.
Remember, money only holds the meaning you give it. Change your story around money, and it can transform not only your business but your entire life.
Meet the experts behind M7 Group: Adnan Khan, CPA; Matthew Lopes; and Marcos Lopes, PCP. Together, they provide comprehensive tax, accounting, and financial advisory services across North America.
For more information on how M7 Group can assist you and your business with TAX Services, financial clarity, and strategic growth planning, contact us today.
