Well-kept records help farmers plan for the long term, but how long should farmers keep records? Some records should be kept for three years, some four and others permanently, said Arlanda Jacobs, Extension associate with the Small Farm Program at the University of Arkansas at Pine Bluff.
Keep all records of income or deductible expenses 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. However, keeping records for longer periods of time can provide historical data that can help in analyzing business profitability, suggested Jacobs.
Farmers who filed a Schedule J (Form 1040), Farm Income Averaging, may have to prove taxable income for four base years. On the other hand, if you failed to report more than 25 percent of your gross income, the government has six years to collect the tax or start legal proceedings.
Failing to file a return or filing a fraudulent return eliminates any statute of limitations for an audit by the IRS, warned Jacobs.
Those employing anyone in their businesses must keep all employment records for at least four years after the employment taxes are due or paid, whichever is later. Keep records that show sales and purchase agreements for capital items, such as land, building and equipment permanently, advised Jacobs.
Keep a copy of all filed tax returns. If you need a copy of a filed tax return, submit Form 4506 along with a check for $57 to the IRS Center where you filed the return.
The Farm Service Agency (FSA) publishes a 78-page recordkeeping publication “Farm Business Record Book,” which contains worksheets needed to complete an analysis of farm business operations and forms for direct loans. The book is free at your local FSA office. For help with recordkeeping, contact your area Extension associate or county Extension agent.