If you do end up choosing a digital storage solution, make sure you don’t need a physical copy or original document in the future. The last thing you want to do is shred something to save space, only to need it five years later. If you go the digital route, it may be a good idea to create multiple backup copies in case one of them is damaged or fails. Digital backups take up much less space than having multiple paper copies of your important documents.
Tax records
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. As a business owner or a manager, you probably have storage to keep various documents, such as employee records, timesheets, invoices and bills, tax returns, or bank statements. In fact, you can be downright inundated with records… from tax returns and expense receipts to invoices, canceled checks, payroll records, bank statements, meeting minutes—the list goes on.
Store files in a safe place, preferably in a location protected from fire, flood, theft and other loss. Someone other than yourself should also know where these important records are kept. This includes documents detailing contributions, rollovers and distributions.
How should I store my records?
Payroll records, ledgers, journals and other financial and statistical information may be converted to electronic form and retained in that manner. However, correspondence, memoranda and other similar documentation should be retained in the original format, as should all contracts, leases, agreements and other legal documents. DOL – The Department of Labor requires that you keep payroll records, collective bargaining agreements, and sales and purchase records for three years. Other employee records, including pay rate, hours worked, time cards, bonuses, withheld taxes, etc., should be kept for at least two years.
If you omitted income from your return
By law—or in some instances, best practice—you should continue to store your business’s documents long after winding down. In this article, we’ll help you work through the things you should know about recordkeeping when closing your business. Individuals should keep copies of their filed federal and state tax returns even for years after they’re filed. Keeping all of your documents on your computer isn’t very efficient and can bog down your system. Other digital storage options include external hard drives, like HDDs and SDDs, which are compact solutions for storing massive amounts of electronic data.
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.
Insurance Documents/Permits
- They can also help them assess the gains or losses realized from the sale or disposal of the property.
- 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.
- In both events, you may need access to your business’s documents and financials to validate your claims and defend yourself against accusations of wrongdoing.
- Check with your accountant, state, insurance company, or the IRS if you have questions about recordkeeping duration.
- After the record retention time frame expires, the records should be destroyed.
- For over 30 years he has written books and magazine articles for such publishers as McGraw-Hill.
The amount of time you need to hold on to business records depends on the type of business you are operating. There are some common suggestions for how long you need to keep your business records. Use Patriot’s online accounting for stress-free tracking, secure storage, and more. That’s why it’s important to create a business-wide Standard Operating Procedure that all necessary employees learn as part of the onboarding process. You don’t want to be dependent on one employee for important document storage.
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. Addressing personnel files more specifically, review requirements for federal and state record retention. Financial records are among the most important documents that a business can retain. These show accounts received, accounts payable, and any funds spent on supplies, equipment, salaries, rent, advertising, professional licenses, insurance, and other expenses.
The length of time correspondence should be retained differs, but most correspondence should be kept for at least three years. Andjelka is a researcher and writer with 6+ years in digital marketing. Her background in social work and journalism has sharpened her skill in connecting with people from all walks of life.
While old school types may prefer paper, there are many secure cloud storage systems available that keep your data safe and make finding documents as simple as using a search bar. HMRC will usually ask you to try to retain or reproduce some of those lost documents. For example, you may be able to get bank statements by getting into contact with your bank. If you fail to produce some documents when requested by HMRC, you may be liable for a fine. This article will outline some of the key points you should know about document retention if you are closing your business, and it will touch on some of your legal obligations to keep certain documents.
- At the same time, they are in force and longer for a reasonable time.
- Check individual state laws to determine how long to keep state-mandated business records such as certificates of inspection, insurance, worker’s compensation, and compliance documents.
- That way, if anything goes wrong, there is a record of responsibility.
- Email messages and other information that exists only in electronic form are as much business records as paper documents and must be retained with the same care.
By maintaining accurate and well-organised records, you can streamline your tax reporting, avoid penalties, and make informed financial decisions. Bank statements and canceled checks generally may be discarded after seven years. Ask your CPA to help you design a standard expense report form for all employees who incur these expenses. Require each employee to submit the form, with appropriate receipts, to receive reimbursement.
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. 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.
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.
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. Once you know what types of records you have, it’s time to determine how long to keep tax returns, statements, and other documents. 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.
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.
However, many of the specific time requirements depend on the type of document and individual how long should you keep business records after closing state requirements. A small business attorney can give you guidance that’s suitable for your business and the state in which it operated. These are federal- and state-generated documents that show a business is registered, inspected regularly, and/or principles are compliant with state licensure regulations. Of course, restaurants and facilities that handle food are required to keep business records documenting food sale permits, staff training, pest control, and health department inspections. Ask at city hall what business records are required for a specific type of establishment in order to begin research. In the digital world, recordkeeping is simpler—and takes a lot less physical space!