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A Beginner’s Guide to Record-Keeping for Small Businesses

A Beginner’s Guide to Record-Keeping for Small Businesses

how long should a business keep financial records

During this time, the IRS can also request information to assess additional tax or examine any fraudulent activity. If you filed your taxes early for a particular year, the three-year clock starts on the tax due date. Document retention guidelines typically require businesses to store records for one, three or seven years.

How Long Should You Keep Documents?

Review all guidelines carefully and come up with a plan that’s easy to implement and stick with. If you do end up choosing a digital storage solution, make sure you don’t need a physical copy or original document in the future. The last thing you want to do is shred something to save space, only to need it five years later. It’s one of the first things that will be requested should you want to sell your company or be involved in an audit or lawsuit. In addition to employee tax information, you should keep all human resources files for any employee, current or former. These records include anything like resumes, job applications and descriptions, performance reviews, and any employee files.

how long should a business keep financial records

Keep or toss? A guide to CPA firm record retention

Having this documentation is necessary to avoid tax implications due to errors or misfiling. Also needed to fulfill life insurance policies, pensions, death benefits, etc. This is one of the documents you’ll need to get shortly after someone dies. Things like birth records and adoption papers are important to keep forever. Usually needed for jobs, enrolling in school, obtaining a driver’s license, benefits, insurance additions, etc.

Brokerage Statements

  • Here’s a breakdown of documents to save, based on the time they should be kept.
  • It’s always best to consult with your accountant during a business transition.
  • A simple lockbox you can grab and go is perfect for storing documents in the event of a home fire or flood.
  • Bank statements fall under the category of financial documents to keep at least a year.
  • When your monthly statement comes in, you should check it against any physical receipts or bank records that record your purchases.

Also read up on investing, your retirement plan, and effective budgeting. Many companies now use technology for some financial services and or billing. Your business records can also come in handy in many other instances.

He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast. He has been quoted by publications like Readers Digest and The Wall Street Journal. Kevin’s work has been featured in Bankrate, Credible, CreditCards.com, Fox Money, LendingTree, MarketWatch, Newsweek, New York Post, Time, ValuePenguin and USA Today.

how long should a business keep financial records

How long should you keep financial records that aren’t related to taxes and shouldn’t be kept forever? There are some documents that you can keep for a shorter amount of time, but it would be pertinent to keep them. Most of these documents are also filed in the register or recorder how long should a business keep financial records of deeds office within the county the property is located or where the event occurred. Keeping these records is vital especially when there were errors in filing or no records were filed at all. The main reason to maintain business records is for tax and auditing purposes.

How Long to Keep Tax Records

how long should a business keep financial records

Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return. Once you know what types of records you have, it’s time to figure out how long to keep tax returns, statements and other documents.

  • Not all bank branches offer safe deposit boxes today, but it can be an option if you prefer keeping these documents offsite.
  • For most small businesses, the business checking account is the main source for entries in the business books.
  • Unfortunately, there isn’t a steadfast retention rule that applies to all kinds of records, meaning you need to categorize your files and create a document retention policy (DRP).
  • Choose a well-protected cloud storage program, and use a unique and complex password with two-factor authentication.
  • You can submit documents digitally if they are a copy of the original and can be printed to produce a legit document.
  • The IRS has determined that electronic records are the same as paper originals.

If you claim deductions from worthless securities or bad debt, you need to hang onto records for seven years. If you decide not to file a return, you must keep your records indefinitely. And the IRS also notes that you should keep your business records indefinitely if you file a fraudulent return. The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out. Health insurance policies and related documents are important to keep long term, too.

  • Your best bet is to hang on to your tax returns as long as possible.
  • Digital backups take up much less space than having multiple paper copies of your important documents.
  • Any income, deductions, and credits that you want to report on your tax returns require relevant documentation.
  • For your most important documents, a standard filing cabinet might not be enough.
  • So long as your health insurance is active, you should keep these records.
  • Except for a few guidelines from government agencies, you won’t find many hard-and-fast rules about how long to keep your business records.

If you destroy paper or electronic records without the CRA’s permission, you may be prosecuted. If you keep your records on servers located outside Canada, you must access the servers or arrange for your staff to access the servers and provide the electronic system records required by CRA officials. While some financial documents should be kept indefinitely, others may only need to be kept for several years, one year, or even a month. Disposing of records is not as simple as separating recyclables from other types of refuse.

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