Aside from the essential Internal Revenue Service rules for retention on tax records, the rules regarding how long a business must keep business records are not set in stone. This is true whether they are for general recordkeeping, compliance for taxation, business planning or anything of the like.
Expect to get varying answers depending on your particular kind of business as well as your specific circumstances. In general, however, below are best practices for record retention that most companies implement.
Your Tax Returns
These are among the most vital business records that you should really consider keeping and securing for as long as possible. According to the rules set by the IRS, businesses must keep records that tax-related.
This is true if these can support a credit, deduction, or income item on your return until such time that the statute of limitations for auditing that tax return has lapsed. In most cases, this limitation is about three years.
But this could be extended for up to six years. This is if the IRS notices a significant error, or up to seven years if the IRS sees a bad debt claim. Because of this, most businesses choose to keep tax returns for up to seven years.
This includes records that can clearly support or back up claimable credits, deductions, or income like previous tax returns, bank statements, invoices, and receipts.
Your Operational and Accounting Records
It’s best practice for businesses to keep all accounting records permanently. These include budgets, financial statements, check registers, general ledgers, profit and loss statements, as well as documents related to audits.
As for operational records like bank statements, expense and invoice reports, credit card statements, and canceled checks, keep them for at least seven years. For bank statements not linked to crucial business or tax matters, consider keeping yearly statements, those very detailed ones, for at least seven years.
Your Employee Records
Keep tax files for at least four years starting from the time of filing or when you paid the taxes, and keep employee human resource records for at least seven years following the employee’s termination or resignation.
Retain records of pension, profit-sharing, and benefit plans of employees permanently. If you have employees that have sustained injuries related to their job duties, keep their records for 10 years at least.
Your Vital Business Records and Ownership Files
Specific files should ideally be kept forever, including property documents, title records, deeds, major contracts, and your business’ formation paperwork. Make copies and make sure they’re kept somewhere safe and secure.
If your company is currently in litigation or you suspect that you’ll be involved in one, make sure that you retain all paperwork that you think may be relevant to the current or potential litigation. It’s also vital to note that you might need to suspend your typical record disposal strategies such as when contingent on a crucial business matter.
Lastly, consider having a tax professional and lawyer check your company and individual circumstances. This will make sure that you keep what needs to be kept and let go of records that are no longer required.