Tweet

Record Retention Guide for Small Business – What to Keep and What to Toss

Guest post by: Linda Siniscal

Article Overview: It’s tax time and you have piles of receipts, bank statements, tax forms scattered all about. If you work from a home office, filing space is definitely at a premium so here is a guide of what records you need to keep, what you can save electronically and what records you are safe to shred and destroy.

Record Retention Guide for Small Business – What to Keep and What to Toss

It’s tax time and you have piles of receipts, bank statements, tax forms scattered all about. If you work from a home office, filing space is definitely at a premium so here is a guide of what records you need to keep, what you can save electronically and what records you are safe to shred and destroy.

Federal law requires you to maintain copies of your business tax returns as well as your personal tax returns for three years including all the supporting documentation for those returns. The IRS calls this the “three-year law.” However, if the IRS believes you have consistently under reported your income by 25% or more or believes fraud may be involved, they may go back six years for an audit but the requirement to maintain 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 limitation does not begin until the tax return has been filed and if the return is considered fraudulent there is no limitation on when the records can be requested.

Listed below is a breakdown of the records you need to save and for how long based on current IRS guidelines. Again, please use common sense to make the right decision between keeping too much or not keeping records long enough. If you have a question about a specific document, please consult with either your accountant or attorney prior to destroying. You certainly do not want to be caught without the requested paperwork if contacted by the IRS.

Business documents to keep for three years:

* Bank deposit slips

* Cancelled checks

* Correspondence with customers and vendors

* Credit card statements

* Employee personnel records (after termination)*

* Employment applications*

* Expense reports

* Expired Insurance policies

* Petty cash vouchers

* Physical inventory tags and records

* Purchase orders and receiving sheets

* Requisition orders

* Time cards for hourly employees

Business documents to keep for six years:

* Accident reports and claims

* Accounts payable ledgers

* Accounts receivable ledgers

* Bank statements and reconciliation reports

* Cancelled stock and bond certificates

* Employment tax records

* Expense analysis and expense distribution schedules

* Expired contracts, leases

* Inventories of products, materials, supplies

* Invoices to customers

* Notes receivable ledgers and schedules

* Payroll records and summaries, including payment to pensioners

* Plant cost ledgers

* Purchasing department copies of purchase orders

* Sales records

* Subsidiary ledgers

* Time books

* Travel and entertainment records

* Utility records (if tax related)

* Voucher register, schedules

* Vouchers for payments to vendors, employees, etc.

Business records to keep forever:

* Audit reports from CPAs and/or accountants

* Cancelled checks for important payments, especially tax payments

* Cash books, chart of accounts

* Contracts, leases currently in effect

* Corporate documents (incorporation, charter, by-laws, etc.)

* Deeds

* Depreciation schedules

* Documents of fixed asset additions

* Financial statements, year-end

* General and private ledgers, year-end trial balances

* Insurance records, including current accident reports, claims and policies

* Investment trade confirmations and statements

* IRS revenue agents reports

* Journals

* Legal records, correspondence and other important matters

* Minute books of directors and stockholders

* Mortgages, bill of sale

* Property appraisal prepared by outside appraisers

* Property records

* Retirement and pension records

* Tax returns, worksheets and payment checks

* Trademark and patent registrations

Personal documents:

For one year:

* You don’t need to save monthly and quarterly mutual fund and IRS contribution statements. You need to keep 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 bills

* Property records and improvement receipts

* Real estate – sold property records, contracts, receipts

* Sales receipts

* Supporting documents for tax returns

* Wage garnishments

To keep forever:

* CPA audit reports

* Important correspondence

* Income tax payment checks

* Income tax returns and payment checks

* Investment trade confirmations and statements

* Legal records

* Retirement and pension records

Special circumstances:

* Car records (keep until the car is sold)

* Depreciation schedules and other capital asset records (keep for 3 years after the tax life of the asset)

* Insurance policies (keep for the life of the policy)

* Mortgages, deeds, leases (keep 6 years beyond the agreement)

* Pay stubs (keep until reconciled with your W2)

* Property records, improvement receipts (keep until property is sold)

* Sales receipts (keep for the life of the product warranty)

* Stock and bond records (keep for 6 years beyond selling)

* Warranties and instructions (keep for the life of the product)

So now you know what you need to keep and toss, 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. Proc. 97-22 and 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 – in so many words, they require you to have your records organized and be able to produce them in hard copy format if needed. So before you start scanning receipts, make sure you have a system in place and you back up your electronic records especially if you shred and destroy any original files or receipts.

* Most states with an income tax withholding requirement require employers to maintain employee records and have their own minimum retention period. Check with your state’s treasury department for their required retention period for employee related files.

Related Articles
  Strategic Thinking To Develop A Successful Employee Retention Strategy According To Your Strategic Thinking Business Coach
  Eight Powerful Strategies To Retain Clients, According To Your Strategic Thinking Business Coach
  3 “Out-of-the-Box” Video Ideas for Small Business Owners
  ACT! - Tips and Techniques
  Clean Desk = Sick Mind? Organize For Productivity, Profit and Peace-of-Mind (Part2)
  Using Latency to Improve Customer Retention
  Be Accountable When Managing Your Home Based Business
  Your Credit Score is an Important Tool for Good Money Management Practices
  A Strategic Look At Dos and Donts of Board Meeting Minutes From Your Strategic Thinking Business Coach
  The Song “Finish What Ya Started” Reminds Me to Be a Broken Record: Get Your “Incompletes” Completed Before You Get Pulled Away
  A Strategic Look At Client Retention From Your Strategic Thinking Business Coach
  Plain English Guide to Getting Out of Business
  How to Start a Small Business in the State of Missouri
  What Football Has To Do With Your Business
  Basic Bookkeeping for Small Business
  Keep your credit record squeaky clean
  The Importance of Time Management in Personal Development Plan
  What if you Have no Style?
  Three Types of Marketing Your Small Business Needs to Grow
  Lead Generation & Marketing Automation How-To Guide

Article Tags: IRS laws, IRS requirements, record retention, tax forms



Related Forum Posts
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
These maybe the coldest franchises out there: - Here are the worst 15 performing franchises in regards to having the highest Small Business Administration (SBA) loan failure rates. The list is dotted with sub sandwich shops, fitness centers and car shops. WORST FRANCHISE LOAN FAILURES Failure % 1 OBEE'S SOUP SALAD SUBS 55.56% 2 LADY OF AMERICA 41.94% 3 COUNTRY CLUTTER (BED & BREAKFAST) 41.18% 4 COPY CLUB 36.36% 5 ALL TUNE AND LUBE 35.71% 6 PICKERMAN'S 35.71% 7 PHILLY CONNECTION 35.59% 8 ROLY POLY ROLLED SANDWICHES 34.78% 9 COTTMAN TRANSMISSION 34.48% 10 HAIR COLOR EXPRESS 33.33% 11 LEE MYLES AUTOMOTIVE TRANSMISSIONS 33.33% 12 GODFATHER'S PIZZA 33.33% 13 SMOOTHIE FACTORY 33.33% 14 BLIMPIE 31.39% 15 GOLF U.S.A. (RETAIL GOLF EQUIP.) 30.77% Source: Small Business Administration, SBA Loan Performance Within Franchise Code for the Period of FY 2001 - 2005
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: Biz Plan Competition - i just wanted to say that posting Small Business Events on CanadaOne is a great resource. Thanks Julie!
New Small Business Topic - Hello everyone, I'm on the lookout for new topics to add to my site. We just launched a Franchising section and are planning Human Resources section. Do you have any thoughts for a new section? Here's a list of what we currently have: Angel Investors Branding Bank Loans Business Coaching Business Plan Franchises (New) Insurance Legal Marketing Public Relations Sales Small Biz Loans Venture Capital


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Reverse Mentoring

In the Year 2020 . . . Process

Making the Most of Your Trade Show Experience

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.