If you run a business, you may be wondering how long you should keep your business records. In this paperless age, many companies find themselves confused about record retention. Record keeping is a tedious but necessary evil of business. If you get it wrong, you can open yourself up to litigation, succession issues, and invite the tax man to take a closer look at your business. Understanding the recommended retention period for business records can help you avoid many of these issues.
It doesn’t matter if you are curious about how long to keep bank statements, payroll records, or pay stubs. Proper business records retention is an important part of your financial record-keeping practices. Read below to find out about retention times for your financial documents.
Basic Rules of Business Record Retention
The IRS has laid out some general rules for keeping tax records. Outside of taxation, there are very few rules to dictate business records retention. For the most part, accountants, lawyers, and bookkeeping services recommend keeping original documents for seven years. Seven years should give you enough time to defend yourself during tax audits, lawsuits, and any other potential claims.
Types of Documents
Business Tax Returns and associated records should be kept until they can no longer be used to audit your tax return. The IRS can come after you 3 years after filing your taxes. If they believe you made a “substantial error,” they can go back 6 years.
Records associated with payroll taxes, such as time sheets, wages, pension payments, tax deposits, benefits, and tips, should be kept for 4 years from the date they were due or the date they were actually paid, whichever is later.
You should retain personnel records for current employees for 7 years from the date of termination or retirement. If there is an employee work-related injury or lawsuit filed against your company, you may want to hang on to any relevant records for up to 10 years after the claim is settled.
Keep employment applicant information for at least three years, even if you do not hire the person.
Ownership documents, including business formation records, annual meeting minutes, bylaws, stock ledgers, and property deeds, should be kept indefinitely.
Records associated with accounting services, such as financial statements, check registers, profit and loss statements, budgets, general ledgers, cash books, and audit reports, should be kept for at least seven years. Accountants are notoriously stingy when it comes to record destruction; many will recommend keeping these records indefinitely.
Business Operational records, such as bank statements, credit card statements, canceled checks, cash receipts, and check stubs, should be kept for seven years.
Please note, these are recommendations only. Your CPA, outsourced accounting service, or tax attorney may recommend alternative retention schedules for your business based on your industry and specific business needs.
