“Hey, How Long Do I Have to Keep These Records?”
I’ve had many business owners ask me how long they have to keep their business records and receipts. Sadly, the answer is not as simple as we might have hoped; it really depends on what type of document it is. Here is what I found out:
It is not only the IRS that might ask for your documents from prior years. Other agencies that may need records include the Federal Trade Commission, National Labor Relations Board, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the Securities and Exchange Commission, and many more on the national, state, or local level. Different states and agencies have slightly different retention policies so the following is just a general guideline and is not meant to take the place of legal advice.
- Entity Organizational Documents – save permanently
- Legal Contracts – save permanently
- Finance & Tax
- Annual Financial Statements – save permanently
- Asset Ledgers and Depreciation Schedules – save permanently
- Audit Reports – Save permanently
- Bank Statements – 7 years
- Cancelled checks for major asset purchases – save permanently
- Cancelled checks for (not major asset purchases – 7 years
- Check Ledger – 7 years
- Subsidiary Ledgers – (A/R, A/P etc) – 7 years
- Tax Records (Income tax returns, Quarterlies, W-2’s) – permanently
- Inventory Records – 7 years
- Customer Invoices – 7 years
- Vendor Invoices – 7 years
- Sales Records – 7 years
- Employee Records
- Employee Accident Documents and Logs (after settlement) – 11 years
- Employee Medical Records related to exposure of toxic substances – save permanently
- Employee Procedures Manual – 11 years
- Job Descriptions – 11 years
- Non-Hired job applications – 1 year
- Personnel Files (after termination) – 7 years
- Time Cards – 7 years
- Reimbursement Vouchers – 7 years
- Payroll Checks – 7 years
- Workers Compensation Documentations – 11 years
- Routine Correspondence, Including Email – 4 years
Even if your business does not last as long as the required record keeping, you must still keep those records. Get a storage facility and box them up. Or, if you have an efficient way to scan documents, I suggest scanning all documents as they come in, putting them in the appropriate computer file, separated by year, and then shred the paper form. If you opt for the digital storage option, make sure your files are secure! This means keeping redundant back-ups of everything.
A good system might include a set of local copies on your computer, a back-up on a secure cloud storage service, and set of hard copies stored on an external hard drive. To be safe against some kind of catastrophic event, make sure this hard drive is not stored in the same place as your work computer. For example, if your office floods, you don’t want your computer and the hard drive back-up to both be ruined.
It may seem a little extreme, but the whole idea is better safe than sorry!
I hope that helps you in deciding what to keep, what to toss, what to scan and what to shred. If you have any questions, let me know in the comments below. If you’re looking for help with your bookkeeping, contact us at Kristina’s Abacus!