How long should you keep business records: How Long Should You Keep Documents?

How long should you keep business records

Most of these records should be held for seven years, including general journals, bills of lading, purchase orders and accounts-receivable ledgers. If you are audited by an independent firm, maintain the audit report permanently in your files. In many cases, the more records you maintain the better, as long as the paperwork is filed in an organized fashion. Nonetheless, there’s bound to be a time when your small business starts outgrowing its file cabinets or runs out of space for bankers’ boxes in the records room. Before you begin indiscriminately purging them, know the guidelines for how long you should keep company records. Having a clear, documented record of how the project progressed is vital, especially if employees or other witnesses are unavailable, or have simply forgotten what happened and when.

Getting rid of your paper filing by setting up an electronic filing system will save you space and rid you of paper clutter. An electronic filing system makes a lot of sense because it’s easier than ever. Practical and real-world advice on how to run your business — from managing employees to keeping the books. Statutes of limitations are time periods that limit when a party can sue. Generally speaking, they run from the date a defect has been discovered or an injury occurred.

In the event that personal banking records have been lost, banks have records of accounts and transactions for years. Depending on the bank, and whether it’s a state or federal bank or a credit union, the records for each individual account can be kept for varying amounts of time, with a minimum of 5 years after closing the account. However, for different accounts and different purposes, like mortgages and loans, the banks have a different standard for record retention. Because the burden of proof is on you to back up every item on your tax return with documentation, the best approach to recordkeeping for small businesses is to try to keep as many records as you can. Just how long do you need to keep your taxes, receipts, bank statements, and other important documents?

Do I need to hang on to paper bank statements?

Some states, including Texas, Illinois and North Dakota, have adopted this standard. It says businesses should keep records not covered under statute-specific retention periods for at least three years. The length of time you should keep a document depends on the action, expense, or event the document records. You must keep your records as long as needed to prove the income or deductions on a tax return. Most companies purge employment applications every year, though most other employee records must be held much longer.

  • It’s one of the first things that will be requested should you want to sell your company or be involved in an audit or lawsuit.
  • If you decide not to file a return, you must keep your records indefinitely.
  • Piles of paper are a pain, and managing a home filing system can be a drag.
  • Hold your small business’s commission reports for seven years past the date they were created, and hold payroll tax documents for three years.
  • Purchases, sales, payroll, and other transactions you have in your business generate supporting documents.

Your accountant or tax advisor may have different recommendations for your situation. Chamber of Commerce can help your company grow and thrive in today’s rapidly-evolving business environment. Connect with our team to learn how a small business membership can benefit your bottom line and help you achieve your goals. The following questions should be applied to each record as you decide whether to keep a document or throw it away.

Let’s say you filed your 2020 tax return two months ahead of the deadline, on February 10, 2021. That means you’d need to keep the receipts, tax records, and any other documentation related to the return until April 15, 2024—three years after the deadline for your 2020 tax return. If you have employees, the IRS recommends that you keep all employment tax records for at least four years from the time you paid the taxes or filed the return (whichever is later).

If you file a fraudulent return, or no return at all

If there’s ever any doubt about whether you should keep a document, keep it. This is mainly due to the Period of Limitations, which is the time during which you can amend your tax return, or during which the IRS can perform an audit on your return. If documents are still “active”—you need to hold onto them for reference—place them in your home filing system by topic.

Experts advise that you keep these documents for at least seven years after an employee leaves or is fired. In addition, if an employee was injured on the job, you should keep any related records for up to ten years after worker’s compensation was paid. The IRS accepts electronic records in audits, so you can make a digital copy of most records to reduce paper clutter.

If you omitted income from your return

If you’re a corporation, you’ll also need to keep any director or shareholder meeting minutes and a stock ledger. Other key ownership and business documents should be kept permanently including deeds, titles, property records, and any contracts. The IRS can write to you within the period of limitations to ask for a review extension far beyond the three-year mark, and if additional tax is assessed, the agency has 10 years (or sometimes more) to collect. To be extra safe, it’s best to digitize as many records as you can and keep them for at least seven years, and in some cases, indefinitely.

How long should you keep business records

It is highly suggested that each person retain their own personal records for up to 10 years after the accounts at a bank are closed. This is also highly regarded as a safe minimum for any tax records as well. When an individual has a credit card through a bank, the account only needs to become dormant in order for the ban to consider it closed, but these records must be retained for 5 years after closing or dormancy as well. Say you dispose of a property by selling it during the 2018 tax year, report the financial gain on your 2020 tax return, and file your tax return right on the tax deadline of April 17, 2021. That means you’d need to keep records connected to the property until April 17, 2024 (i.e. three years after the filing date of April 17, 2021).

For example, your insurance company or creditors may require you to keep them longer than the IRS does. Unlike statutes of limitations, statutes of repose definitively bar claims after a set period of time, regardless of when a defect is discovered or an injury occurs. Most statutes of repose run from the date of substantial or final completion, though some statutes use other trigger dates (including written acceptance or occupancy). Most states (as of this writing, 46) have an applicable statute of repose, which range from four to fifteen years. For example, Massachusetts has a 6-year statute; New Jersey, Ohio and West Virginia have 10-year statutes; Pennsylvania has a 12-year statute. Any business deduction on your tax return can be questioned during an audit—even expenses under $75.

In the US, there are several federal anti-discrimination laws that apply to recordkeeping and hiring. For example, Title VII, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) all impact how you handle your hiring records if your business is over a certain size. When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes.

How to Get Rid of Documents

Shredding documents is the main way to protect yourself from identity theft. As a general rule, there are certain documents that absolutely should be shred. This includes anything that has account numbers, birth dates, maiden names, passwords and PINs, signatures, and Social Security numbers. These are the most important that you may need at any time in the future for a variety of reasons. Ensuring that they’re kept in a safe place and that a copy is secure will save you a lot of time when they’re needed.

Every business should have a comprehensive, carefully considered record retention policy, drafted with input from human resources, information technologies, operations management, and legal counsel. The following is an industry-specific guide to the why and how of creating a record retention policy suited to your company. In fact, you can be downright inundated with records… from tax returns and expense receipts to invoices, cancelled checks, payroll records, bank statements, meeting minutes—the list goes on. The Internal Revenue Service has established some basic record-keeping rules for tax documents. Outside the tax arena, there’s remarkably little guidance about how long you should keep business paperwork. Most lawyers, accountants and bookkeeping services recommend keeping original documents for at least seven years.

One key to creating a workable home filing system is to start cutting down on the amount of paper you receive. Piles of paper are a pain, and managing a home filing system can be a drag. However, you do need to hang onto some documents because you never know when you’ll need them. Lastly, keep in mind that you’ll need to keep originals for important documentation. These are things like articles of incorporation, business licenses, partnership agreements, and any signed contracts. These include your company formation documents, such as articles of incorporation (for corporations) and articles of organization (for LLCs).

Unfortunately, there isn’t a steadfast retention rule that applies to all kinds of records, meaning you need to categorize your files and create a document retention policy (DRP). Closing a business includes many steps, such as canceling licenses and permits, and sometimes transferring ownership. It’s always best to consult with your accountant during a business transition. Once you know what types of records you have, it’s time to figure out how long to keep tax returns, statements and other documents. Below, we’ll go over legal retention requirements and best practices for records not covered by federal or state laws.

You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. The Better Business Bureau recommends holding onto bank statements for three years, and Bankrate suggests storing them for at least seven years. Records of bank reconciliation reports need be maintained for only two or three years, and duplicate bank deposit slips should be held for three years. Cashbooks and expense reports should be kept for seven years, and petty cash statements and “spiff tickets” — records of immediate cash bonuses paid to employees — need to be held for only three.

These records include timesheets, employee information, and benefit payments. Your insurance company may require you to keep records for longer periods in case of a claim, and some creditors may require you to keep loan documents indefinitely. Maintain documents until you’ve confirmed any requirements with your creditors and insurers.

It’s crucial to hang onto records that reflect your income and deductions in case your business is audited, and also to protect yourself and your business against any legal or insurance issues. Provided the retention periods are in conformity with applicable guidelines, it is prudent to set retention periods to the minimum required, to minimize the risk of unauthorized access to data. Your CPA, outsourced accounting service or tax attorney may recommend a different approach for your record retention based on the rules of your industry and the specific needs of your business.

Organizing your physical and cloud-based storage along with developing a DRP is the best way to ensure your organization complies with record-keeping standards. Review all guidelines carefully and come up with a plan that’s easy to implement and stick with. Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.