How long do you keep your business files? Do you keep them forever, or do you get rid of them after a certain length of time? Keeping files for a business is different from keeping your personal files. Many different types of business files need to be kept at different lengths of time. Over the years, small business owners have asked me these questions. The IRS doesn’t have a clear, across-the-board answer to this question, so here is what I suggest. If you wish to visit the IRS.gov website, click here.
First, let’s go through how long you should keep your personal records.
For personal files, you can review and shred after three years if you haven’t been audited. Keep all the supporting documents that relate to your tax return and get rid of the rest. Things to keep are W-2s, expense reimbursements, 1099s, mileage logs, itemized support paperwork like mortgage taxes and investment capital gains paperwork, etc… When to shred? If the tax year is 2020 and you file/pay it in April 2021, you could go through the paperwork and shred it after April 2023.
Now, let’s talk about small business records.
How long to keep general small business records?
For small businesses, there are many more types of paperwork to go through, and you will probably need to keep it longer. For small businesses, I recommend 7 years, but the IRS says 3 years. That would mean if you filed in April 2020, you should keep the files until 2027 or 2023 at the earliest. The IRS says that there are some exceptions. “Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return. Or keep records indefinitely if you do not file a return. Or, keep records indefinitely if you file a fraudulent return.“
Items to keep in general small business records.
Income receipts: Cash register tapes, Deposit information (cash and credit sales), Receipt books, Invoices
Submitted forms: 1099s, W-2s submitted to IRS and other informational documents
Expense receipts: Resale items, the material used, the cost of goods sold, canceled checks, electronic email receipts, credit card statements, bank statements, petty cash, travel, transportation, entertainment, gift expenses, etc…
Employment tax records: Additionally, keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
Paperwork to keep for at least 2 years?
Keep canceled insurance policies for at least 2 years after the policy ended especially if you had a claim. This is being conservative, but I rather you be safe than sorry.
Paperwork to keep for at least 4 years?
Keep staff files for 4 years from the date they left or were terminated.
The IRS specifically mentions employment tax records which are very important to keep safe and secure and must be shredded to protect everyone’s privacy. Keep employment tax records for at least 4 years after the paid date of the tax. So, if you pay your 941 in January for the 2019 4th quarter, you should keep your employment taxes until January 2023. Though I still think keeping payroll documents and payroll tax returns for 7 years is safer. For more information about what to keep for your employment tax record keeping, please click here.
Paperwork to keep for at least 6 years?
Mortgage agreements or other asset documents, like machinery and furniture, are important to keep. Be sure to keep information about your assets, like purchase price and date, cost of any improvements, Section 179 deduction taken, deductions taken for depreciation, deductions taken for casualty losses, such as losses resulting from fires or storms, how to use the asset, when and how you disposed of an asset, selling pricing if you sold it, expenses of sales. The invoices, real estate closing paperwork, canceled checks, and sales receipts should have this information in them.
Paper to keep indefinitely?
There are also papers that you need to keep as long as the business is running. Here are a few examples.
Correspondences with clients, employees, and colleagues.
Correspondences that are in process or pending.
Business, corporation paperwork, stock records, profit-sharing paperwork, copyrights, etc…
Current insurance policies
Contracts with clients and staff
Some exceptions for indefinitely:
An exception could be if a client’s business is closed. Wait two years and then get rid of these papers.
Before purging any business files, be sure to do your own research and contact your accountant to confirm with them your exact situation and what you can get rid of safely. Always remember that ALL these sensitive records must be disposed of in a proper way. Shredding the documents with a shredder like the ones below will maximize the security of all involved.
I hope this helps you and your business clear up paper clutter and get rid of them in the most effective and secure way.
Let’s continue the conversation, do you have any tips on how to handle these records? Please leave a comment below.
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