Everyone is so afraid of the IRS that they adopt the policy of better safe than sorry. Yes, it creates havoc when you have loads and loads of paper in cartoon boxes. This often creates a messy, cluttered and disorganized space that can traumatize anyone that comes across it.
Some people are habituated to save every letter, receipts, statement, bills, and invoices without checking whether you need to do so or not. They just store it for the time being and leave it for later to sort it out.
It is imperative that you know which paper to save and for how long. Remember document and receipts that is not a proof of deductible expense must be shredded monthly, half-yearly or annually.
The concept of paperless business is taking industries by storm but you must also keep back-up information in its right place. Check with your accountant, government agencies, banks, and lawyers to understand every policy diligently and then make changes in your system to avoid unnecessary clutter.
1) Business income tax returns and supporting documents
An entrepreneur often feels harassed because he is flooded by lots of paperwork. In most cases, he is also not aware of the actual rules pertaining to that document and when he tries to make inquiries he often finds a different set of answer from different people.
The IRS is very strict in its rules and an individual must have a clear idea about how long to keep business records pertaining to income tax returns and its supporting documents. You can keep a final copy of the returns and related documents permanently with the IRS for the benefit of both the parties.
According to the rules set by IRS, supportive correspondence must be retained if they are related with claims about deduction or income of a business entity until the limitation period ends for that tax return. The IRS has the authority to pursue you until 6 years if you fail to report any income.
In case a businessman has filed for a deduction against bad debt he must keep the supporting records for seven years.
2) Business asset records
The IRS suggests that every business owner checks with its website to know how long to keep business records of assets faithfully if it does not want to commit any mistakes. It asks every business proprietor to retain the property records until the limitation period ends from the year you disposed of it.
It is the records that will assist everyone in determining the actual loss or gain by calculating applicable depreciation on that property. Deeds or titles of a vehicle or real estate property must be kept safe until you sell that property or dispose of it completely.
3) Employment tax records
Do you know how long to keep business records of employees that work for you? Are you aware that employment tax records for every one of your employees will have to be kept by an employer for at least four years?
The IRS is very particular about it and the date begins after the taxes were paid or were declared due whichever fact comes later. The employment tax records of the employee should contain
- Name and address of the employee
- Social security number of all the employees
- Occupation records of the workers
- Employment date
- Fringe benefits and tips if offered
- Tax deposits
- Annuity payments
- Employer identification number
4) Human resources
It is better to make inquiries to know how long to keep business records of files related to human resources. A business cannot survive without its employees and an employer has several files about former and current workers working in its company.
Except for the employment tax records which we have already dealt in sub-heading 3 all other files and records of all the employees that are working must be kept permanently while they are in employment and for seven years after they have left your company for any reason.
You also need to keep the files of job applicants for three years even if they were not hired later on. In case an accident occurs and a worker suffers on the job it is imperative to retain the records for ten years after the compensation was paid or seven years after the matter was resolved to everyone’s satisfaction.
If a discrimination claim has been filed against the organization by an employee it is better to keep the records safe for four years after the matter is resolved. Some records should be kept permanently and these include
- Pension payment
- Employee benefit
- Profit-sharing plans
5) Business ledgers and other important documents
Are you looking for ways to find out how long to keep business records of business ledgers and other related important documents? The supportive tax records, receivable ledgers, accounts payable, expense reports and invoices must be kept safely for at least seven years.
There are several documents and records that must be kept permanently for instance
- Documents of business formation
- Financial statements
- Cash books
- Profit and loss statements
- Journal entries
- Business ledgers
- Check registers
- Corporate amendments
- Corporate by-laws
- Annual reports
- Minutes of the annual meeting
- Audit reports
- Capital stocks and bonds
- Information about the board of directors
- Legal correspondence
It is important to know which documents to keep and for how long for the welfare of the organization. Be diligent in your efforts if you want to avoid any harassment by the authorities.
6) Bank accounts and credit card statements
Do you know how long to keep business record related to bank accounts and credit card statements? The answer is that they should be kept safely for seven years.
If they act as supporting documents for the purpose of tax then they must be retained for a longer period but in case they do not serve any business purpose and have no effect on the tax then keep the annual statements for seven years and shred the monthly statements every year.
7) Canceled checks
Do you want to know for how long to keep business records related to canceled check? Then answer to your query is that all canceled checks that do not have any business purpose or an impact on taxes can be shredded after seven years.
In case the canceled check acts as a supporting document then you should keep it until the expiry of the limitation period.
8) Insurance files
If you want to know how long to keep business records pertaining to insurance files then the answer in indefinitely. Sometimes products that have been manufactured by a company can have serious after effects on an employee.
It might not come to attention at the onset but become visible after several years. An employee can file a lawsuit for a claim of compensation whenever he comes to know about it. It is imperative to keep the insurance records of that period to show you had occurrence-based insurance at that time.
Better keep the files as you never know what can happen in the future.
9) Home office expenses
Are you working from home and want to know how long to keep business records for office expenses. The answer to your question is three years and the best part of working from home is that you can apply for several deductions on tax.
Better hold on to property tax bills, phone line bill, home insurance, internet, and utility bill as it can help you to gain deductions from the tax you owe to the IRS.
10) Office supply expenses while working from home
If you want to know how long to keep the records of office supply expenses while working from home the answer is three years.
Keep the receipts of supplies that helped you to furnish along with purchases like a printer, computer, and desk that are also deductible under tax laws.
11) Vehicle mileage expenses
Want to know for how long to keep business records of vehicle mileage then the answer is three years. Track your miles and maintain a notebook. Hold on to the bills in relation to routine maintenance like automobile upkeep, tire rotations and oil changes for tax purposes.
12) Business receipts
How long to keep business receipts is a question that is on everyone’s mind. You should keep it to show the actual proof of a sale or buy. It is imperative to maintain the records for three years but in case of some error safe-keep it for six years.
If the receipt is for expenses less than 75 $ you do not need to keep it in your files. It is now permissible to keep digital copies and store the related receipts on your laptop or computer.
Maintain records by separating them by date and categories as it will make it easier to find any relevant paper easily. Actually, it depends on the individual document about how long you must keep it safe.
If it is connected with business operations, assets, properties, contractual agreements, titles and deeds you will have to keep it indefinitely whereas some can be shredded after three or in most cases after six years depending upon their usage.
Record keeping is an integral part of a business entity but it does not mean that you have to be hyper in your efforts and save every paper. Take professional help if you are not sure about the proper rules of maintaining and preserving documents so as to save yourself from any hassles later on.