Documents You Must Keep for Tax Purposes

It's critical for your organization to keep accurate tax records and maintain a good recordkeeping system. This way, you can respond to an IRS audit or prove compliance with various laws should it become necessary.

Compiling Asset Records

When compiling documents on your nonprofit's assets, keep records about:

How and when assets were acquired,
Any debt used to buy them,
Purchase prices,
Cost of any improvements,
Depreciation deductions,
Deductions for casualty losses (if any),
How assets were used,
When and how assets were sold,
Sale price and sale expenses.

Essential Documents

However, you don't have to retain every paper document or electronic file that crosses your desk. The IRS requires organizations to keep certain essential documents on file. These records back up accounting entries, reported taxable income, expenses and deductions.

For example, you must keep documents that support:

The law generally doesn't require a special kind of recordkeeping system. You can choose any system suited to your organization's activities that clearly shows income and expenses. An easy way to organize documents is by year and type of income or expense.

Supporting Evidence

Documents that can be used as supporting evidence varies, but generally include:

Once you've collected, organized and filed records, how long should you keep them? For IRS purposes, you must keep records for as long as you're able to amend a tax return or claim a refund, or as long as the IRS can assess additional tax. This statute of limitations is commonly three years after the date a return is due or filed, whichever is later.

Exceptions to the Rule

However, you need to retain some records longer, for example:

For more information on recordkeeping, consult your tax advisor.