Cancelling QuickBooks Online: Records to Export Before You Go

What do I have to keep before I cancel QuickBooks Online (QBO)?

Before you cancel, export for every year in the file: profit and loss, balance sheet, general ledger, trial balance, bank and card reconciliations, attachments, payroll and 1099 reports, and the fixed asset list. Cancel only after the last year's returns, payroll filings and year-end adjustments are filed and saved, and export the current year to date too: its entries support the next return. Then test that the copies open without the software.

You must keep your books and the papers behind them, and cancelling the subscription does not hand that duty to anyone else. Federal regulations require permanent books or records sufficient to establish gross income, deductions and credits, retained as long as their contents may matter to any federal tax law. The IRS says taxpayers are responsible for maintaining their own books and records.

If you keep your books in software, the IRS treats that data as the original books of entry. It says examiners request the backup file in the majority of cases where a taxpayer uses accounting software. What stays available after you cancel, and for how long, is set by Intuit's current terms, not by the IRS. Read them first, and export before you cancel, not after.

A cancellation is simple when one entity has a few years of data, every account is reconciled to its statements and there is no payroll. It stops being simple when:

• Years of receipts and invoices exist only as attachments inside the file.
• Business and personal money are mixed, or accounts were never reconciled.
• Payroll runs through the file.
• A sale, a closing or a lender request is coming.
• A notice or examination is open, or a year was never filed.

Gather these before you start:

• The filed return for every year in the file.
• Administrator access to the file, and a note of which plan and add-ons you use. If a bookkeeper or accountant set it up, ask them to confirm who the administrator is or to run the export before you cancel.
• Bank and card statements from the institutions.
• Payroll, quarterly return and Form 1099 copies.
• Invoices for equipment and property bought.

How long do I keep the records: 3 years or longer?

The IRS default is 3 years, and several cases run longer. The clock runs from the filing of each return, and a return filed before the due date counts as filed on the due date (IRS).

For a business, gross income here means receipts before cost of goods sold (26 U.S.C. 6501(e)). For a partnership or S corporation, the 3 years run from the later of the due date or the filing date of each partner's or shareholder's return, not only the entity's own (Form 1065 instructions; Form 1120-S instructions). Insurers or creditors may require records longer than the IRS does, and so can a state: California's income tax period is usually 4 years (Franchise Tax Board). Because the period differs by record, and asset records can outlast the rest, export every year the file holds, not only the last three. Every period in full, including refund claims, bad debts and after a sale or closing: how long to keep business records.

Which reports do I export for every year?

Export the profit and loss, balance sheet, general ledger, trial balance and reconciliations for every year in the file. The IRS names no list of reports. This list is built from what Publication 583 requires of computerized records: they must reconcile with your books and return and carry enough detail to identify the source documents.

A profit and loss alone is a summary. The IRS says examiners drill down from reports to the underlying data and documents, and a printed summary cannot be traced. Run the general ledger across all dates, not one year at a time: the IRS may ask for the month before and the month after a year under examination, to check that income and expenses landed in the right year. Run reports on the same accounting method the return uses.

Which receipts, invoices and statements exist only in the software?

Any document attached to a transaction, and anything uploaded or emailed into the file, may exist nowhere else. Publication 583 says purchases, sales and payroll generate supporting documents such as invoices, receipts, paid bills and deposit slips, and that they support the entries in your books and on your return.

• Download attachments on bills, expenses and invoices. Do not assume a data export carries them: open the export and check.
• Save the invoices as your customers received them, and any payment receipts.
• Get bank and card statements from the institution, not from the software. Publication 583 says that without a canceled check, statements prepared by a financial institution may prove payment when they show the amount, the payee and the date posted or charged, plus the check number for a check.
• Keep the Forms 1099 you received. Publication 583 lists Forms 1099-MISC and 1099-NEC among gross receipts documents.

Proof of payment alone does not support a deduction. Publication 583 says to keep the invoice or sales slip that shows you incurred the cost. Photos and scans: scanned receipts instead of paper.

Which payroll and employment tax records do I keep?

Keep all employment tax records at least four years after the tax is due or paid, whichever is later. The IRS employment tax page words the start point as after the fourth-quarter return is filed; when the two differ, the later date gives the longer period (Publication 583; IRS employment tax recordkeeping).

Export the payroll register by employee and pay date, the tax liability and deposit history, the employment tax returns you filed and the Forms W-4, for every year in the file. If payroll ran through a separate service or add-on, export from there too, because the accounting file may not hold its full history. What the IRS lists, the longer period for credit-wage records, wage-hour and Form I-9 clocks, and state rules: payroll records retention.

Which asset records do I keep, and until when?

Keep records of business property until the limit ends for the year you dispose of it in a taxable disposition (IRS). They can outlast the subscription by many years.

Publication 583 says the records should show:

• When and how you acquired the asset, and the purchase price.
• The cost of any improvements.
• The section 179 deduction and depreciation taken, and any casualty loss deducted.
• How you used the asset.
• When and how you disposed of it, the selling price and the expenses of sale.

Export the fixed asset list and depreciation schedule, and save the purchase invoices, real estate closing statements and improvement invoices that support them. If you received property in a nontaxable exchange, keep records of both the old and the new property.

Partnerships and S corporations: also export the capital, contribution, distribution and owner-loan accounts. The partnership instructions say to keep records that support each partner's share of profits, losses and capital (Form 1065 instructions). Owner basis records are covered in how long to keep business records.

What about sales tax, 1099 and other filed-form records?

Copies of Forms 1099 and other information returns you filed should be kept at least 3 years from the return due date, or you should be able to reconstruct the data. The period is 4 years if backup withholding was imposed, and Form 1099-C has its own longer period (IRS).

Sales tax record rules are set by each state, so check the revenue agency of every state where you are registered. California does not count PDF files as electronic records and requires transaction-level detail it can retrieve and convert, so a seller there keeps the spreadsheet export or full copy, not PDFs alone (Regulation 1698). From the software, export the year-end 1099 vendor report with its transaction detail, and the sales tax liability and payment reports. Customers' resale and exemption certificates may sit only as attachments: keep them, because in Texas sales without them are presumed taxable in an audit (Texas Comptroller). Also save the Forms W-9 you collected from vendors, including any received electronically: the IRS can ask for a hard copy (Form W-9 instructions).

What format do I download the export in, and how do I test it?

Save three layers: PDFs of the reports, spreadsheet exports of the detail, and, if the software offers one, a full copy of the company data.

The IRS FAQ says the backup file is an exact copy of the books of entry, and that examiners may ask for the administrator login. That page describes backup files and does not say whether an export from a hosted service counts as that copy. If a file the IRS cannot read is all there is, the examiner decides how to proceed. So keep the full copy and the PDFs together, and ask a professional if an examination request arrives.

Do not condense, purge or re-key the data before saving. The IRS says a new file built by re-entering transactions is not a copy of the books of original entry, and condensed data is not acceptable for the years under audit, which you cannot know in advance.

To test the export:

1. Open every PDF and spreadsheet on a different device, without logging in to the software. For the full data copy, note what it needs to be read.
2. Check that each year's reports cover the full date range and all accounts.
3. Compare each year's profit and loss with the filed return. Differences should be ones you can explain.
4. Pick ten transactions across different years and open the document attached to each.
5. Write a one-page description of how the file was kept: the software and plan, the years covered, who had administrator access, how bank feeds ran and where attachments sat. Publication 583 asks you to keep a description of the computerized part of your system.
6. Store two copies in separate places, and record any password.

What changes if I am closing or selling the business?

Closing or selling does not by itself shorten the period: the IRS periods above run from each return. A dissolving corporation can ask the IRS in writing, after a return is filed, to assess within 18 months of the request, if it begins dissolution in good faith and completes it. The 6-year and no-limit cases still apply (26 U.S.C. 6501(d); Form 4810). An employer that closes or sells attaches to its final Form 941 a statement naming who keeps the payroll records and where (Form 941 instructions). Those who receive a closing corporation's property can be assessed its unpaid tax, generally until one year after the corporation's own period ends (26 U.S.C. 6901(c)), so someone must keep its books.

Before a sale or closing, take the full export of the books while you still hold administrator access, and keep your own copy before any copy goes to a buyer. Settle in the terms of the sale who holds the books afterward. Closing the company: closing a company. Every period after a sale: how long to keep business records.

What does my accountant or the next software need from the export?

An accountant needs the yearly reports, general ledger and attachments; new software needs balances and lists as of one cutover date.

• Your accountant or preparer: the filed returns, the yearly reports and general ledger, year-end adjustments, the depreciation schedule, payroll and 1099 reports, and a list of any years that were never reconciled.
• The next software: what to bring in depends on the cutover date: switching accounting software mid-year.

Do not assume your accountant already holds a copy. Ask in writing which years and formats they keep, because the duty is yours. Opening balances: opening balances after changing accountants.

Example

These examples are illustrative, use US dollars and assume returns are filed on their due dates.

A sole proprietor cancelling after 6 years

A freelance designer reports about US$90,000 of gross income a year and cancels in May of Year 7, after filing the Year 6 return. She exports the general ledger and profit and loss for all six years and for Year 7 to the cancel date, and downloads the receipts attached to expenses. The default 3-year period has ended for Years 1 to 3. It would run 6 years, to April of Year 8, Year 9 and Year 10, if a return left out more than 25% of its gross income, and asset records or a state period can keep them longer, so she exports all six years rather than counting on the default.

An S corporation with US$300,000 of payroll

An S corporation paid US$100,000 of wages in each of Years 1, 2 and 3 and cancels in May of Year 4, after its Year 3 returns are filed. Wages paid in Year 1 are covered by returns filed early in Year 2, so those records are kept at least until early Year 6, about two years after the subscription ends. Year 3 records run to early Year 8, and Year 4 records to early Year 9. It exports payroll registers, deposit confirmations, W-4 forms and the filed quarterly returns for Years 1 to 3 and for Year 4 to date.

A landlord who sold a US$250,000 property

A landlord bought a US$250,000 rental building in Year 1, paid US$20,000 for a roof in Year 4 and cancels in Year 5. The building is sold in Year 9 and that return is filed in April of Year 10, so the records must be kept until at least April of Year 13, about eight years after cancelling. If that return overstated the building's basis by more than 25% of its gross income, the period would run 6 years, to April of Year 16. The purchase invoice, closing statement, roof invoice and depreciation schedule are exported before the cancellation.

Different for you?

• Years of attachments, payroll, or mixed or unreconciled accounts, and you are unsure what is complete enough to keep: which years to export, whether the books need repair before they are archived and who holds the copy are judgment calls. Settle them before you cancel, with bookkeeping help.
• Books far behind, or a year never filed: repair comes before archiving, because an archive of books that do not reconcile keeps the problem. See catching up on overdue books and catching up on unfiled business returns, or get catch-up bookkeeping done before you cancel.
• A notice or examination is open: do not condense, purge or re-key the file, and have a professional review any export before it goes to the IRS. See an IRS audit of a small business.
• You are moving to new software: see switching accounting software mid-year and software your accountant supports.
• You use QuickBooks Self-Employed or Desktop: see QuickBooks Self-Employed discontinued and QuickBooks Desktop discontinued.
• Balances broke after moving from Desktop to Online: see Desktop to Online balances off and get bookkeeping help.
• A bookkeeper needs access to finish the export: see giving a bookkeeper access.
• You are closing or selling the business, or a lender or investor will review the books: the final export, any prompt-assessment request and who holds the books are worth settling with a professional before the last return. See closing a company and financial records investors ask for.