Businesses tend to pile up records very quickly, often leading to clutter and eventually wasted space needed for new and current projects. So how long should businesses retain records? Generally, client records should be kept until there is certainty that they do not require a useful purpose. Client records often contain important financial and legal documentation, so it is important to make sure on both ends that the record is not required anymore. It is recommended that businesses develop a retention policy to keep the clutter to a minimum. The yearly “file purge” is a recommended policy to consider. This means removing unnecessary files and records from devices or storage to keep space open and maintain internal organization. There are obvious repercussions if you get rid of important documentation before the end of its useful life. Our guidelines below will aid you in the process of record retention for legal and financial documents. Please note that states have different document retention policies, especially when it comes to payroll records.
Permanent File: Documents to Keep Forever
Certain documents can be difficult to replace, and you may be asked to provide them by the IRS, state tax authority, bank, or even your insurance broker. These you should keep forever and store such “permanent records” in an indexed file, fireproof storage or safety deposit box. We also recommend creating a digital copy.
- Legal documents
- Corporate documents (incorporation, charter, constitution, bylaws, minutes, partnership agreements, stock certificates & ledgers)
- Licenses, patents, trademarks, and registration applications
- Contracts and leases
- Property records and appraisals by an independent party
- Documents substantiating fixed asset additions, including depreciation schedules
- Income tax returns, worksheets, and proof of payment
- Retirement and pension records
- IRS or financial audit reports
Documents to Keep for One Year
- Corresponding with Customers and Vendors
- Duplicate Deposit Slips
- Purchase Orders (other than Purchasing Department copy)
- Receiving Sheets
- Requisitions
- Stockroom Withdrawal Forms
Documents to Keep for Three Years
- Employee Personnel Records (**after termination)
- Employment applications
- Timecards for Hourly employees
- Expired insurance policies
- General correspondence
- Internal audit reports
- Internal financial reports
- Petty Cash vouchers
- Physical inventory tags
- Vehicle documents and mileage logs
Documents to Keep for Six Years
- Accident Reports, Claims
- Accounts Payable Ledgers and Schedules
- Accounts Receivable Ledgers and Schedules
- Bank Statements and Reconciliations
- Canceled Checks
- Canceled Stock and Bond Certificates
- Employment Tax Records
- Expense Analysis and Expense Distribution Schedules
- Expired Contracts, Leases
- Expired Option Records
- Inventories of Products, Materials, Supplies
- Invoices to Customers
- Notes Receivable Ledgers, Schedules
- Payroll Records and Summaries, including payments to pensioners
- Plant Cost Ledgers
- Purchasing Department Copies of Purchase Orders
- Sales Records
- Subsidiary Ledgers
- Time Books
- Travel and Entertainment Records
- Vouchers for Payments to Vendors, Employees, etc.
Create a Backup Set of Records and Store Them Electronically
Keeping a backup set of records- including, for example, bank statements, tax returns, insurance policies, etc.- is easier than ever now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet.
Even if the original records are provided only on paper, they can be scanned and converted to a digital format. Once the documents are in electronic form, taxpayers can download them to a backup storage device, such as an external hard drive, or burn them onto a CD or DVD (don’t forget to label it).
You might also consider online backup, which is the only way to ensure that data is fully protected. With online backup, files are stored in another region of the country so that if a hurricane or other natural disaster occurs, documents remain safe. Make sure the digital file storage has the proper security before storing any personal data.
Use Caution Disposing of Your Records!
Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you should dispose of these records by shredding them and not by merely throwing them away in the trash.
