Many international companies dealt with data breaches in 2018 despite advanced security technologies that should keep the data safe. One of the main causes is the fact some offices keep documents longer than they should.
At some point, you must dispose of the files as they lose their importance and purpose. This is especially true if those documents carry client’s names, credit card information, and contact information.
This begs the question: what documents should you keep and how long to keep business records?
That depends on the purpose and significance of keeping the files. Keep reading to find out how long you need to store each document.
The General Rule: Keep for a Month
In general, utility, mobile, cable, and other bills are okay to dispose of when you’ve verified that the service provider has processed the payment. However, you may need to keep these bills if you’re self-employed, as you’ll need to use them during tax season.
You can also throw away your bank withdrawal and deposit slips within a month after you’ve verified the transactions in your monthly statement. Keep your bank statements safe, though.
Keep for a Year
Store your monthly credit card and bank statements for about a year once you have your business’ detailed annual statement, which you would need to keep for a longer time, depending on your purpose.
Also, keep your pay stubs until the tax season, when you’ll need to verify the accuracy of your Form W-2. As for how long to keep tax returns, keep reading below.
Keep for 3 Years
According to the IRS, you should keep your ITR records for 3 years after filing your original return or 2 years from the date of your tax payment, whichever is later. This only applies if you file a claim for refund or credit after filing your return.
You should also store your records for 3 years if you file a return, if you don’t file a fraudulent return, or if you report all the income you should report.
Keep for 7 Years
After disposing of your monthly credit card and bank statements, keep your annual statements for 7 years. That is if you’re not using them for tax or other business purposes. If you are, you may have to retain these documents longer.
You may have to retain some key business documents on a permanent basis, but the following are good for a minimum of 7 years:
- Expense Reports
- Accounts Payable/Receivable Ledgers
Canceled checks also only need to stay for about 7 years if they serve no business or tax purposes. The IRS also recommends keeping your ITR records for 7 years if you file a claim for a loss from bad debt deduction or from worthless securities.
We also recommend saving other supporting documentation that can verify the information on your tax return for 7 years, such as:
- Forms W-2 and 1099
- Tuition Payments
- Charitable Donation Receipts
If you don’t report income to the IRS that you should report the unreported income is over 25% of the reported gross income, keep your records for 6 years, as the IRS can come after your business during this time.
All files of your current employees should be safe, and keep them for 7 years more after they’ve left your company. As for their employment tax records, the IRS suggests to keep them for 4 years after the tax payment or due date, whichever is later.
When an employee sustains an accident on the job, keep the records for at least 7 years after resolving the matter. If the employee in question receives workers’ compensation benefits, retain the records for up to 10 years.
Records of discrimination cases that an employee may have filed against your company should be in your company for at least 4 years. Note also that you have to keep the files of job applicants for 3 years.
Until Period of Limitations Ends
According to IRS, you should keep your business property records until the period of limitations expires from the year of disposal of that property. The records will be helpful in determining your gain or loss from the sale or disposal of the property. You also need these records in calculating any amortization, depreciation, or depletion deduction.
The IRS further recommends keeping the records of the old property in addition to the new property. This is until the period of limitation expires from the year of disposal of the new property.
Permanent or Indefinitely
You may need to keep your ITR records indefinitely if the following IRS guidelines apply to you:
- if you file a fraudulent return
- if you don’t file a return
Business asset records, other than those of business properties, should be safe and secure. Keep the deed or title of real estate or a vehicle only until you sell or dispose of them.
When businesses ask CPAs how long does a business have to keep records, they often urge the companies to be on the safe side and store the following files on a permanent basis:
- Journal Entries
- Profit and Loss Statements
- Financial Statements
- General Business Ledgers
- Check Register
- Annual Reports
- Corporate By-Laws and Amendments
- Business Formation Documents
- Board of Director Information
- Annual Meeting Minutes
This also applies to questions like “how long to keep business tax records?” In general, keep permanent records of business tax returns, supportive records, any payment to the government, legal filings, or inheritances.
How Long to Keep Business Records For Other Entities
Keep in mind that you may need to keep documents for longer than the IRS recommends depending on the requirements of your insurance company or creditors.
You might also need to forego disposal if you have further needs for related documents, such as when facing litigation or there’s a pending business matter. Use machines with high-quality shredder blades to ensure the information remains unreadable and irredeemable.
Dispose Business Records the Correct Way
When disposing of these important documents, make sure to do it the right way: by shredding them to bits so that thieves or other ill-meaning persons will get a hold of your private information.
Now that you know how long to keep business records, check out our business resources to find more tips from experts in your industry. We have multiple guides available, like this one discussing simple but effective marketing strategies.