How Long Should You Keep Business Records?
Any business owner can tell you that invoices, receipts, tax returns and other business records aren’t just a short-term pain. If you use paper documents, they’re also a strain on your physical space as the years roll by. That’s because companies are expected to keep documents like these around for years in case the IRS or other governmental agencies come knocking.
Fortunately, you don’t need to hold on to these documents indefinitely. In fact, it’s likely that you’ve got a few drawers’ worth of files that have outlived their usefulness.
So, how long should you keep business records? It depends on what records you’re talking about. The following are some of the most common types, and how long you should retain each one.
Employee Files
If you hire a person on Jan. 1, and they only stick around until Jan. 2, you still should keep their personnel records for at least seven years after their departure, under normal circumstances. If you’re in a situation where an employee files a claim against your business, keep any related documentation for at least a decade after the claim’s resolution.
Job application files aren’t quite the same thing. Nonetheless, keep these business records for at least three years, even for people you didn’t end up bringing onboard.
Financial Records
Documents such bank and credit account statements should be kept for a minimum of seven years, though in some cases, your accountant might suggest holding them for longer. Depending on your situation, you might be able to dispose of monthly statements after one year and simply retain annual statements.
Ownership Records
You must retain a few documents pertaining to the organization of your business, as well as its operations, indefinitely. These include formation documents, deeds and shareholder meeting minutes, among others.
Property Records
The IRS says you should keep any property records “until the period of limitations expires for the year in which you dispose of the property.” You’ll need them to calculate depreciation, amortization or depletion deductions, as well as determining the gain or loss upon the property’s sale or disposal.
Tax Records
This one’s a little complicated.
In general, the IRS suggests that you keep tax records for three years. If you file a claim for a credit or refund after you file your return, the guidance becomes either three years after filing the return or two years after paying the tad, whichever is later.
Employment tax records are a year further out — keep them for at least four years after the later of when the tax was due or was paid.
If you file a claim for a loss from worthless securities or bad debt reduction, however, retain those tax records for seven years. If you fail to report income that you should have, and it’s more than 25% of your gross income that year, keep your records for six years.
And if for whatever reason you don’t file a return or file a fraudulent return, keep your records indefinitely.
In general, these time periods line up with the amount of time the IRS has to audit you in different situations.
Reduce Your Record-Keeping Burden in a Flash
Every business ultimately will have to keep around some amount of physical documentation. But many companies that have “gone paperless” are able to digitize many of these records, making them far easier to store.
That’s just one benefit of McManamon & Co.’s paperless office consulting services. Others include cost savings over time and a much more technologically flexible workplace that can better deal with work-from-home situations.
Are you ready for the office of the future (and a much more manageable set of records)? Get in touch with us today by calling 440.892.8900 or contacting us online.
Tags: paperless office, record-keeping, small business, small business taxes | Posted in McManamon & Co., paperless office