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Being a business owner, it is crucial to store the vital documents of the company, such as tax return statements, bank statements, credit notes, personal records, employees’ financial records and so on. Alas! There is no hard and fast rule applicable for retaining every kind of document. This implies that you need to categorise your documents and build your own document retention policy (DRP) based on the domain of your company.
After categorising your documents, you must figure out a way to store them and decide for how long you are going to keep a particular document. We can discuss the best and most recommended practices for maintaining accounting records for a business.
Table of contents
- The General Rule
- How Long Should I Be Keeping Accounting Records for My Business?
- Summing Up
The General Rule
You don’t need to worry much about the tax documents as The Internal Revenue Service has established a few general record-keeping rules for tax documents. Apart from the taxation segment, there is quite limited guidance available on how long you should keep accounting records for your business.
A large number of lawyers, accountants, bookkeepers and consultants recommend that the original documents must be preserved for a period of a minimum of seven years. According to the rule of thumb, seven years is the recommended time for defending any tax audit, pending lawsuits and potential claims or returns.
How Long Should I Be Keeping Accounting Records for My Business?
The periods mentioned below are not absolute or issued as rules but as a guide. Your CFO, CPA, remote accountant, accounting consultant or tax attorney may recommend any other approach based on the specific needs of your business or rules coming from your industry or region. Therefore, have a discussion with your team before exhausting any documents.
Let’s discuss how these specific documents are dealt:
- Business Tax Returns
Business Tax Returns and other critical supporting records must be kept until the IRS has no right to audit your return. In common scenarios, the IRS can audit you for three years after a filing, but that period may extend to six years in case the IRS suspects you made a “substantial error” on your return.
- Payroll Tax Records
Payroll tax records, including time sheets, payslips, wages, bonus records, gift card information, pension payments, tax deposits, benefits and tips, should be retained for at least four years after the taxes fell due or the date you paid them, whichever is later.
- Current Employee Files
The documents related to the company’s current employees must be retained for at least seven years after the employee resigns, is terminated or retires. Furthermore, if an employee undergoes a work-related accident or files a claim in agony for the business. In such cases, keeping your records for up to 10 years is recommended after the claim is resolved.
- Job Applicant Information
Job applicant information should be retained for a minimum of three years. This is recommended even if you didn’t hire the applicant.
- Ownership Records
This includes business formation documents, annual meeting minutes, by-laws, stock ledgers and property deeds, they must be retained permanently.
- Operational Records
These include bank account statements, credit card statements, cancelled checks, cash receipts and chequebook stubs, these can be handled following the seven-year rule.
- Accounting Services Records
You must keep Accounting Services Records for at least seven years. Being an accurate bunch, accountants usually suggest that you preserve your financial statements, check registers, profit and loss statements, cash flow statements, budget plans, general ledgers, balance sheets, cash books and audit reports permanently.
Summing Up
Now that you understand that accounting records are a treasure to the company. With the immense advancements made in the data analysis sector, it is recommended that you keep critical financial information with you forever. If you need someone who can help you with your finances and you are actively looking for accountants, but don’t have the time to recruit candidates, you can reach out to us at 123financials.
We can find the best candidate for you based on the job roles and responsibilities shared by you. We are deeply rooted in the finance and accounting industry and have a dedicated team for filtering and recruiting candidates.
