BooksTime  ➞  Articles  ➞  How Long You Ought To Keep Business Records

March 24, 2022

How Long You Ought To Keep Business Records

Reading Time 5 mins

Every business produces tons of documentation they must keep for some while. But what documents and for how long? It’s a topic of great concern for many business owners.

Record-keeping is a tedious but critical procedure reflected in the IRS guidelines. Companies and organizations must follow strict rules to avoid problems. Keep reading the article to learn what financial documents to keep and how long.

Understanding Business Records

A business record is a document that registers a dealing of a company or organization. Every business owner knows they must keep their records. But what documents are considered “business records”? They may refer to the following documentation:

  • Legal documents.
  • Bank statements.
  • Receipts.
  • Accounting records.
  • Licenses and permits.
  • Insurance documentation.

It’s critical to keep records for some time. The IRS may require documents in case of an audit. Your company may also need to prove a specific business expense deduction that you claimed to reduce taxable income.

General Rule

The Internal Revenue Service has guidelines that companies and organizations must follow. But guidelines mainly focus on tax-related documentation. Most bookkeepers and lawyers recommend following the basic rule and keeping original documents for at least seven years. Seven years is enough in case you would have to defend from tax audits, lawsuits, and any claims.

No More Bookkeeping Stress

Keeping proper financial records is time-intensive and small mistakes can be costly. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business.

Specific Documents to Keep

Check more details about specific documents to keep and for how long.

Payroll Tax Records

The documentation includes:

  • timesheets;
  • wages;
  • pension payments;
  • any tax deposits;
  • benefits to employees;
  • tips.

Keep records for 4+ years after the date the taxes were due or after the date a business paid them. Choose whichever is later.

Business Tax Returns

You must keep not just business tax returns but also documents that support this claim. Keep documents up until the IRS won’t need them to organize an audit on the company’s return.

The IRS may audit a company during the first three years upon filing. But if the agency suspects a company in an error or false statement, they may organize an audit during the first six years.

Current Employee Records

Some business owners may think they can get rid of employees’ documents if they leave the company or retire. But the reality is that it’s mandatory to keep these documents during the next seven years.

Moreover, if the employee gets injured at work or files a lawsuit against the business, it’s imperative to keep their documents during the next ten years — even after the claim was resolved.

The job applicant information should be kept during a minimum of three years, even if the company decided against hiring an employee.

How Long You Ought To Keep Business Records

Accounting Services Records

Companies should keep these documents during at least seven years. Most accountants recommend keeping the following:

  • budget plans;
  • check registers;
  • general ledgers;
  • financial statements;
  • profit & loss statements;
  • cash books;
  • audit reports.

They insist these documents be kept permanently.

Ownership Records

Keep the following records:

  • annual meeting documentation;
  • business formation documentation;
  • by-laws;
  • property deeds;
  • stock ledgers.

As in the previous example, these files also should be kept permanently.

Operational Records

These include credit card and bank statements, checks (even canceled), cash receipts, checkbooks. Keep the data at least seven years.

Tips to Record Keeping

As mentioned, the main concern of the IRS is taxes. When you file tax return information, you shouldn’t abandon those documents. Make sure to keep them properly. Here are a few tips to use when keeping the most important business-related documents:

  • Keep supporting documents. Give it three years in case you have to prove deduction or credit claims.
  • Always keep invoices, bank statements, receipts (easy to do when using cloud services), payroll statements, and any other type of documentary that evidences and supports an item of income, deduction, or credit from a tax return.
  • If a taxpayer doesn’t file taxes, they will be sooner or later involved in back taxes. In this case, they must keep all documents during the next six years.
  • Keep records of bad debts or worthless securities that you have deducted (7 years).
  • Store everything electronically. Consider automated accounting software. Get help from an accountant or bookkeeper to make things with documents much more manageable.
  • If a small business expense is less than $75, or it is related to transportation, meal, or lodging expenses, one isn’t required to keep the receipt. However, a taxpayer has to keep other supporting documents (like bank or credit statements) to prove the expense has occurred and when it occurred.

Some documents are not needed to file taxes, but they might be required elsewhere. If you have doubts, keep the document.

What Documents can Businesses Omit?

Businesses would get overwhelmed if they had to keep every little document. Even if a company or organization is using accounting software and stores documents on a cloud server, they still consume space and thus require maintenance costs. Thankfully, you may exclude some documents from the “to keep” list.

As mentioned, if you spend less than $75 on some resources, then there is no need to keep the receipt. However, it’s mandatory to keep the lodging expense. In some cases, it’s not possible to get a receipt for transportation.

One isn’t obliged to keep lodging or meal expenses if under an accountable plan with a per diem allowance. But note, the IRS still may question expenses under $75. To avoid issues with the IRS, keep the following records:

  • when and where the expense has occurred;
  • data on how much you paid;
  • the purpose of the expense.

Keep all other records during a set period. Keep reading our blog to learn why company owners should keep business-related records.

Why should Businesses Keep Business Records?

One might think keeping business-related records is only needed in the case of IRS audits. But there are other reasons to keep company’s or organization’s documentation:

  • Prepare financial statements.
  • Monitor business progress in finding weak points.
  • Keep track of the basis in the property.
  • Identify income sources.
  • Keep track of any potential deductible expenses or credits.
  • Prepare and fill out tax return forms during the tax season.
  • Support taxable income statements.

One of the most beneficial ways to use business records is by monitoring the company’s progress. Analyzing this data gives you an insight into how the business is operating. That way, you may find some areas that need optimization. In most cases, it’s possible to avoid income losses.

Share This Article

Rate the article
Rate the article
(0 voted) 0 / 5

Author: Charles Lutwidge

Read previous article
Read the next article

Talk To A Bookkeeping Expert

A bookkeeping expert will contact you during business hours to discuss your needs.

bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime
bookstime