Small Business Record Retention Guide: What to Keep and What to Dispose of
It’s tax time and you have stacks of receipts, bank statements, tax forms scattered everywhere. If you work from a home office, file space is definitely at a premium, so here’s a guide to what records you need to keep, what you can keep electronically, and what records you can safely shred and destroy.
Federal law requires you to keep copies of your business tax returns, as well as your personal tax returns for three years, including all supporting documentation for those returns. The IRS calls this the “three year law.” However, if the IRS believes you have underreported your income by 25% or more, or if it believes fraud may be involved, you can go back six years for an audit, but the requirement to keep your records is indefinite. . It is recommended that you keep copies of all your business and personal tax returns indefinitely. It is also important to note that the statute of limitations does not begin until after the tax return has been filed and if the return is deemed fraudulent, there is no limitation on when the records can be requested.
Below is a breakdown of the records you need to keep and for how long based on current IRS guidelines. Again, use common sense to make the right choice between keeping too many records or not long enough. If you have any questions about a specific document, consult with your accountant or attorney before destroying it. You certainly don’t want to be caught without the requested documentation if you are contacted by the IRS.
business documents save for three years:
- bank deposit statements
- canceled checks
- Correspondence with customers and suppliers.
- credit card statements
- Employee personnel records (after termination)
- Job application
- expense report
- Expired insurance policies
- petty cash vouchers
- Physical inventory labels and records
- Purchase orders and receiving sheets
- requisition orders
- Time cards for hourly employees
business documents save for six years:
- Accident reports and claims
- Accounts Payable Ledgers
- Accounts Receivable Ledgers
- Bank statements and reconciliation reports
- Canceled stock and bond certificates
- Employment Tax Records
- Analysis of expenses and schedules of distribution of expenses
- Expired contracts, leases
- Inventories of products, materials, supplies
- invoices to clients
- Ledgers and notes receivable schedules
- Payroll records and summaries, including payment to pensioners
- Plant Cost Books
- Purchasing department copies of purchase orders
- sales records
- auxiliary books
- time books
- Travel and Entertainment Records
- Utility records (if tax related)
- Registration of vouchers, schedules
- Proof of payment to suppliers, employees, etc.
business records keep forever:
- CPA and/or accountant audit reports
- Canceled checks for important payments, especially tax payments
- Cash books, chart of accounts
- Contracts, leases currently in force
- Corporate documents (incorporation, articles of incorporation, bylaws, etc.)
- Wanderings
- Depreciation schedules
- Fixed asset additions documents
- Financial statements, end of year
- Ledgers and private ledgers, year-end trial balances
- Insurance records, including current accident reports, claims, and policies
- Investment trade confirmations and statements
- IRS Revenue Agent Reports
- newspapers
- Legal records, correspondence and other important matters
- Books of minutes of directors and shareholders
- Mortgages, deed of sale
- Valuation of the property carried out by external appraisers
- property records
- Retirement and pension records
- Tax returns, returns and paychecks
- Trademark and patent registrations
Personal documents:
For one year:
- You don’t need to keep monthly and quarterly statements for mutual funds and IRS contributions. You need to save the year-end statements
For three years:
- credit card statements
- Expired insurance policies
- medical bills
- utility records
For six years:
- Accident reports and claims
- Medical bills (if tax related)
- Other tax related invoices
- Property records and receipts for improvements
- Real estate: records of sold properties, contracts, receipts
- sales receipts
- Supporting Documents for Tax Returns
- wage garnishments
Keep forever:
- CPA Audit Reports
- important correspondence
- Income tax payment checks
- Income statements and paychecks
- Investment trade confirmations and statements
- legal records
- Retirement and pension records
special circumstances:
- Car records (keep until car is sold)
- Depreciation schedules and other capital asset records (keep for 3 years after the taxable life of the asset)
- Insurance policies (keep for the term of the policy)
- Mortgages, deeds, leases (hold 6 years beyond the contract)
- Pay stubs (keep these until they are reconciled with your W2)
- Property records, receipts for improvements (keep until property is sold)
- Sales receipts (please retain for the duration of the product warranty)
- Stock and bond records (keep for 6 years after sale)
- Warranties and instructions (keep for the life of the product)
So now that you know what you need to save and throw away, can you scan those receipts and will an electronic copy be acceptable? The answer is yes. The IRS has accepted scanned receipts since 1997. The rule is Rev. process 97-22 and it states that your scanned or electronic records must be as accurate as your paper records. The IRS also states that you must be able to index, store, preserve, retrieve, and reproduce the records; Simply put, they require you to have your records organized and be able to produce them in a printed format if necessary. So before you start scanning receipts, make sure you have a system in place and that you back up your electronic records, especially if you shred and destroy the original files or receipts.
* Most states with an income tax withholding requirement require employers to maintain employee records and have their own minimum withholding period. Check with your state treasury department for the required retention period for employee-related records.
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