Not sure how long to keep your business records on file?
Business records sound boring and seem unimportant compared to cash flow, but…
It’s important to know exactly how long to keep your business records so that when (not if) the IRS comes knocking on your door, you can defend yourself.
Wrong choices in your business may lead to litigation, which will require a paper trail up to that decision.
And succession planning problems could leave you with some tough decisions to make later on down the road, instead of just making them the first time.
You will help yourself avoid these problems if you know how long to keep your business records on file.
What’s this business record keeping called?
And it could save you and your business from serious financial consequences in the future.
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I’m going to share the general rule on business record retention so that you can keep peace of mind while you grow and scale your operation.
The Record Retention Rule
If you go over to the Internal Revenue Service, you’ll find established basic record-keeping rules for tax documents.
Look anywhere else outside the tax arena and you’ll find little information on how long you should keep your business records.
Here’s the general record retention rule:
Keep your original business documents for at least seven years.
Most lawyers, accountants, and bookkeeping professionals suggest this timeframe, since it fits the IRS’ rules. In many cases, seven years is sufficient in defending tax audits, against lawsuits, and most potential claims.
How Long to Keep Specific Business Documents
In most cases, the seven-year rule helps cover your business in the event of an audit, lawsuit, or claim. Here’s how long to keep specific business documents:
Business Tax Records (and supporting records) – Up to six years
Keep these until the IRS can no longer audit your return. Typically, three years is as far back as the IRS can reach to audit your returns. However, if the IRS believes you’ve made a “substantial error” on a return, they can reach back six years.
Payroll tax records – Up to four years
On top of your payroll tax records, time sheets, wages, pensions payments, tax deposits, benefits, and tips all must be kept on file for at least four years after the later date: the day the taxes fell due or the day you paid them.
Current employee files – up to 10 years
After an employee leaves, is terminated, or retires, retain their files for at least seven years. But, if an employee experiences a work-place injury or files a claim against the business, keep their records on file for at least 10 years after the claim is resolved.
Job application information – up to three years
If someone applies to work for you, keep their information for up to three years. This ensures that even if you didn’t hire the applicant, you’ve got a paper trail of their engagement with you.
Ownership records – permanently
Business documents, annual meeting minutes, by-laws, ledgers, property deeds, and more should be retained permanently. There’s no reason to get rid of or destroy these records.
Accounting service records – up to seven years
Documents such as financial statements, balance sheets, budgets, ledgers, check registers, canceled checks, cash receipts, checkbook stubs, and more should be kept for up to seven years. Some accountants and bookkeepers will suggest you keep these records permanently.
These are some but not all of the business records you will come across during operation. It’s important to understand that these are not hard and fast rules for how long to keep your business records on file.
These are general suggestions based on what the IRS says is necessary. In any case, speak with your outsourced accounting professional to determine the best strategy around your business records.
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