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BUSINESS RECORDS SAVING GUIDE

RETENTION OF BUSINESS RECORDS

There are specific guidelines that govern how long a business must keep certain client records. Some businesses simply keep records until there is no longer sufficient space to store them, forcing the owners and staff to address the issue after it has likely become overwhelming. What records can be destroyed? Which must be retained, and how do you go about storing them in a manner in which locating them is sufficient and cost-effective? Developing guidelines to address record retention can be easier if you know the regulations that govern the retention and storage of specific documents, as outlined below.

ELECTRONIC FILES

As the use of computers for storing records becomes more secure and available, the storage of electronic files will become a major issue for businesses that wish to eliminate paper stores and reduce office space dedicated to file cabinets. There are federal guidelines issued by the Internal Revenue Service (IRS) that govern electronic file storage/retention. A business must be able to produce legible records that support and reconcile books and tax returns. Source documents in the form of machine-sensible records must be retrievable and contain sufficient transaction-level detail to easily identify them. In addition, there are more specific guidelines that cover the documentation of procedures, the contents of files and system checks.

STAFF (PERSONNEL) RECORDS

You must keep personnel records for a staff member for the duration of his/her employment with your company. Should an employee leave your firm, there are additional guidelines regarding how long records should be kept after the termination date. See the chart to review specific guidelines for this situation.

CORPORATE RECORDS

Items such as by-laws, articles of incorporation, board minutes and stock records must be considered permanent records and thus kept indefinitely.

ACCOUNTING AND TAX RECORDS

Supporting documents for tax returns should be kept in a secure and readily available location at all times — this would include items such as records that support a company’s income, expenses, and tax credits reported on each income tax return until the statute of limitations period for such documents expires. The IRS can audit a tax return for a period of three (3) years after the date on which it was due or the date the tax was actually paid, which is later. Be aware though, if a company under-reports a large sum of income, the IRS can audit for a period of six (6) years after the due date (or nearly seven (7) years after the tax year). In light of this, it is wise to keep tax records for a period of seven (7) years.

EMPLOYEE BENEFIT PLAN RECORDS

Should a filing under ERISA (Employee Retirement Income Security Act) be made, all documentation/supporting documents necessary for verification of any aspect of the filing must be retained for a period of six (6) years after the filing date. Such documentation will vary based on the type of plan, but the minimum should be the basic information that would verify the accuracy and completeness of all required disclosures and the Annual Report. Such records would be the brokerage or trustee statements supporting the investment performance of the plan, payroll, and related data to support eligibility allocations and compliance testing, and participants’ communications related to terminations, loans, or designations of the beneficiary.

To learn more specifics, review the chart listing specific records and their corresponding retention guidelines.

ACCOUNTING RECORDS | TIME PERIOD TO RETAIN

  • Auditors’ Report/Annual Financial Stmts. | PERMANENTLY
  • Bank Statements and Deposit Slips | 7 YEARS
  • Cancelled Checks – Fixed Assets | PERMANENTLY
  • Cancelled Checks – Taxes (Payroll Related) | 7 YEARS
  • Cancelled Checks – Taxes (Income) | PERMANENTLY
  • Cancelled Checks – General | 7 YEARS
  • Cancelled Checks – Payroll | 7 YEARS
  • Cash Disbursements Journal | PERMANENTLY
  • Cash Receipts Journal | PERMANENTLY
  • Chart of Accounts | PERMANENTLY
  • Deeds, Mortgages, Bills of Sale | PERMANENTLY
  • Electronic Payment Records | 7 YEARS
  • Employee Expense Reports | 7 YEARS
  • Fixed Asset Records (Invoices, Cancelled Checks, Depreciation Schedules) | PERMANENTLY
  • Freight Bills and Bills of Lading | 7 YEARS
  • General Journal | PERMANENTLY
  • General Ledger | PERMANENTLY
  • Inventory Listings and Tags | 7 YEARS
  • Invoices: Sales to Customers/Credit Memos | 7 YEARS
  • Patent/Trademark and Related Papers | PERMANENTLY
  • Payroll Journal | PERMANENTLY
  • Production and Sales Reports | 7 YEARS
  • Purchases | 7 YEARS
  • Purchase Journal | PERMANENTLY
  • Purchase Orders | 7 YEARS
  • Sales or Work Orders | 7 YEARS
  • Subsidiary Ledgers (Accts. Receivable, Accts. Payable, Equipment) | 7 YEARS
  • Time Cards and Daily Time Reports | 7 YEARS
  • Training Manuals | PERMANENTLY
  • Trial Balance – Year End | PERMANENTLY

EMPLOYEE BENEFIT PLANS | TIME PERIOD TO RETAIN

  • Actuarial Reports | PERMANENTLY
  • Allocation and Compliance Testing | 7 YEARS
  • Brokerage/Trustee Statements Supporting Investments | 7 YEARS
  • Financial Statements | PERMANENTLY
  • General Ledger and Journals | PERMANENTLY
  • Information Returns (Form 5500) | PERMANENTLY
  • Internal Revenue Service/Department of Labor Correspondence | PERMANENTLY
  • Participant Communications related to Distributions, Terminations, Beneficiaries | 7 YEARS
  • Plan and Trust Agreements | PERMANENTLY

INSURANCE RECORDS | TIME PERIOD TO RETAIN

  • Accident Reports and Settled Claims | 6 YEARS AFTER SETTLEMENT
  • Fire Inspection and Safety Reports | 7 YEARS
  • Insurance Policies (still in effect) | PERMANENTLY
  • Insurance Policies (expired) | 7 YEARS

LEGAL DOCUMENTS | TIME PERIOD TO RETAIN

  • Articles of Incorporation and Bylaws | PERMANENTLY
  • Buy-sell Agreements | PERMANENTLY
  • Contracts and Leases (still in effect) | PERMANENTLY
  • Contracts and Leases (expired) | 7 YEARS
  • Employment Agreements | 7 YEARS
  • Legal Correspondence | PERMANENTLY
  • Minutes | PERMANENTLY
  • Partnership Agreements | PERMANENTLY
  • Stock Certificates and Ledgers | PERMANENTLY

PERSONNEL RECORDS | TIME PERIOD TO RETAIN

Child Labor Certificates and Notices | 3 YEARS
Employment Application (from date of termination) | 2 YEARS
Employment Eligibility Verification (1-9 Form) (from date of termination) | 3 YEARS
Help Wanted Ads and Job Opening Notices | 2 YEARS
Personnel Files (from date of termination) | 4 YEARS
Records of job injuries causing loss of work | 5 YEARS
Safety: chemical and toxic exposure records | 30 YEARS
Union agreements and individual employee contacts (from date of termination) | 3 YEARS

TAX RECORDS | TIME PERIOD TO RETAIN

IRS or FTB Adjustments | PERMANENTLY
Payroll Tax Returns | 4 YEARS
Property Basis Records | PERMANENTLY
Sales and Use Tax Returns | PERMANENTLY
Tax Returns and Cancelled Checks for Tax Payments | PERMANENTLY

RETENTION OF PERSONAL RECORDS

Is your file cabinet bulging with another year’s worth of tax documents? Are you keeping every single bill, tax return, insurance invoice, medical documentation, contract and even the warranty for that l5-year-old coffee maker you don’t even own anymore. If you answered “yes” to any of these questions then you are not alone. Many people are not sure how long to retain their financial records.

With the threat of identity theft coming largely from paper documents it is good practice to shred all of the records you should no longer retain, especially those with your personal information. Expired documents can pose a threat to your financial health and may not provide you with any useful information.

At least once a year you should go through your files and shred everything that is no longer needed. With this volume of shredding, a possibility to consider is the use of a shredding service, if the volume gets too overwhelming.

When it comes to personal records retention guidelines, there aren’t any hard and fast rules but these are some basic guidelines for the retention of your personal records. I am enclosing a wonderful article that I came across that I think is an excellent guideline to personal record retention.

FAMILY RECORDS:

What to Keep Where and For How Long?

  • Why Should You Keep Records?
  • What Kind of System is Needed?
  • How Does One Organize a Record System?
  • What Are Very Important Papers (VIPs)?
  • Where Should VIPs Be Stored?
  • How Long Should One Keep Tax Records?
  • What To Keep Where and For How Long?

Families perform the same tasks as businesses — they plan, buy, save and invest — but usually on a smaller scale. That is why keeping family records is just as important as keeping farm or business records.

Why Should You Keep Records?

Keeping family records in a business-like manner saves time, trouble, money and frustration. Record keeping is important because:

  • Income tax preparation requires information on tax deductions; records substantiate deductions.
  • Death, fire or theft may call for records to establish ownership; records help in estate settlement and insurance or benefit claims.
  • Records document certain transactions; if someone makes a mistake or official records are destroyed, your records may be needed.
  • Records could shorten the time it takes to collect insurance, military benefits, veteran’s benefits or an income tax refund.
  • Evaluating past records provides information for planning future spending. Records provide a summary of your financial situation and can help you keep a close tab on where the money goes.

What Kind of System Is Needed?
Use a system that fits your family’s lifestyle. The family finance center might be as elaborate as a home office or as simple as a drawer in the kitchen or a file cabinet in the family room.
It is important to decide who will take major responsibility for record keeping in the family.

All members -¬including children old enough to understand — should know how the record-keeping system works and how information can be found easily. Some of the tasks can be shared or delegated, but one person with the skills and interest should take the leadership.

Develop a regular schedule for bookkeeping and resolve to stick to it. A routine will actually reduce the amount of time you spend on record keeping.

A well organized record keeping system will eliminate confusion when important papers are needed. Getting started on a record keeping system may be time-consuming, but once it is set up to meet your family’s needs, maintaining the system will be easy.

How Does One Organize A Record System?

Some basic records should be carried with you at all times. Your wallet, billfold or purse is a small record system. Keep identification with you, including your driver’s license, name of person to notify in case of an emergency, credit cards, social security card and organization membership cards.

Health, accident and auto insurance information, and information on allergies, health problems and blood type should also be carried with you.

Other records require a different approach, but the approach does not need to be difficult.
The easiest way to keep track of your family papers and business records is to set up a filing system. A place to store file folders is more important than a fancy desk. A metal filing cabinet, an under-bed storage chest or cardboard box, or an accordion folder will do the job as well as a desk drawer.

Gather your important papers from throughout the house. Divide your file folders into three major areas:
Current financial records
Inactive financial records
Permanent records

The current files should include employment records, credit card information, insurance policies, family health records, warranties and guarantees, education records, bank: statements, a household inventory, tax records and canceled checks. These headings may be used as a basis for your filing system.

The inactive files are used to store the items from the current files that are three years old. Go through the current files once a year. Discard Unneeded items and transfer others to inactive storage. A good time to make transfers is the first of the year when you work on your income tax forms. File headings would be the same as for current files.

Permanent records are Very Important Papers, ones which should be kept safe — in a safe deposit box or in a fireproof (and waterproof) storage container.

Every family’s file folder labels will be different. Divide each area into categories that make sense to you. Feel fee to add to or change your file labels to better meet your family’s changing needs.

A good record keeping system will allow someone who is unfamiliar with the system to locate important documents, maintain records and prepare reports in case of an emergency.

  • Papers or records that prove ownership (such as real estate deeds, automobile titles and stock and bond
    certificates)
  • Birth, marriage and death certificates
  • Legal papers (such as divorce and property settlement papers)
  • Contracts
  • Household inventory
  • Wills
  • Advance Directives such as Living Wills or Durable Powers of Attorney for Health Care
  • Anything else that would be expensive or difficult to replace.

Where Should VIPs Be Stored?

A safe deposit box in a financial institution or a home fireproof safe is the best place for your family’s VIPs. Papers that cannot be replaced or would be costly or troublesome to replace belong in this type of storage. In general, bank account registers, canceled checks, transcripts, medical histories, employment records, tax returns and insurance policies do not need to be kept in a safe deposit box or fireproof home storage

How Long Should One Keep Tax Records?

The Internal Revenue Service (IRS) has a three year statute of limitations on auditing a return. Keep all records of income or deduction expense for three years. However, if you use the income averaging option, you may need to prove your taxable income for four base years and if you failed to report more than 25 percent of your gross income, the government will have six years to collect the tax or start legal proceedings. Filing a fraudulent return or failing to file a return eliminates any statute of limitations for an audit by the IRS. If you hire a tax specialist, check to see how many years you should keep your records.

Keep records that show the original cost or value of your property. Also keep a record of home improvement costs to reduce capital gains tax if your home, land or property is ever sold for more than its original cost or value.

All canceled checks are not needed to support tax deductions. Save only those checks that substantiate an income tax deduction, such as checks paying for medical/dental expenses or charitable contributions. Putting a “T” for “tax” in the memo blank of a check when you write it might help you sort canceled checks faster. In cases where your only record is a duplicate check, you may need the monthly checking account statement to verify that the check went through.

Keep a copy of filed tax returns. Should you need it, a prior tax return copy can be obtained from the IRS center where you filed your return. Complete form 4506, Request for a Copy of Your Tax Form, and pay the fee ($23.00 in 1998). If you have moved to another state, request the copy from the IRS center in which you filed the return you want copied. IRS center addresses are listed in most IRS publications.

What To Keep, Where and For How Long?

Records are kept in four places: in a home filing system; in a safe deposit box or fireproof home storage; in the wallets and billfolds of household members; and in each vehicle owned (refer to the Guide for Family Records).

PERSONAL AND FAMILY

  • Birth, marriage and death certificates – WHERE: SAFE DEPOSIT BOX OR FIREPROOF HOME STORAGE – HOW LONG: PERMANENTLY
  • Adoption and custody papers – WHERE: SAFE DEPOSIT BOX OR FIREPROOF HOME STORAGE – HOW LONG: PERMANENTLY
  • Citizenship papers – WHERE: SAFE DEPOSIT BOX OR FIREPROOF HOME STORAGE – HOW LONG: PERMANENTLY
  • Divorce and separation papers – WHERE: SAFE DEPOSIT BOX OR FIREPROOF HOME STORAGE – HOW LONG: PERMANENTLY
  • Settlement agreements – WHERE: SAFE DEPOSIT BOX OR FIREPROOF HOME STORAGE – HOW LONG: PERMANENTLY
  • Military papers – WHERE: SAFE DEPOSIT BOX OR FIREPROOF HOME STORAGE – HOW LONG: PERMANENTLY
  • Will – WHERE: SIGNED ORIGINAL WITH PROBATE COURT OR FIREPROOF HOME STORAGE – HOW LONG: AS LONG AS IN EFFECT
  • Advance directive (living will/durable power of attorney for health care) – WHERE: HOME FILE, SAFE DEPOSIT BOX, AND COPIES WITH AGENTS AND FAMILY MEMBERS – HOW LONG: PERMANENTLY (UPDATE AS NEEDED)
  • Passports – WHERE: HOME STORAGE OR SAFE DEPOSIT BOX – HOW LONG: UNTIL REPLACED
  • Social Security Card – WHERE: CARRY CARD; STUB IN HOME STORAGE – HOW LONG: PERMANENTLY
  • Diplomas, transcripts – WHERE: HOME STORAGE OR SAFE DEPOSIT BOX – HOW LONG: PERMANENTLY
  • Medical History – WHERE: HOME FILE – HOW LONG: PERMANENTLY (UPDATE AS NEEDED)
  • Employment records – WHERE: HOME FILE – HOW LONG: PERMANENTLY (UPDATE AS NEEDED)
  • Inventory of valuable papers and advisors – WHERE: HOME FILE; COPY WITH TRUSTED FAMILY MEMBER OR FRIEND – HOW LONG: PERMANENTLY (UPDATE AS NEEDED)

PROPERTY

  • Real property deeds, title papers, abstracts, mortgage, and other lien documents (include rental property) – WHERE: SAFE DEPOSIT BOX – HOW LONG: DURATION OF OWNERSHIP OR LONGER IF NEEDED FOR TAX PURPOSES
  • Burial lot deed – WHERE: SAFE DEPOSIT BOX – HOW LONG: DURATION OF OWNERSHIP
  • Tax assessment notices, purchase contracts, records of capital improvements (include rental property) – WHERE: SAFE DEPOSIT BOX – HOW LONG: DURATION OF OWNERSHIP OR LONGER IF NEEDED FOR TAX PURPOSES
  • Motor vehicle titles, purchase receipts and licenses – WHERE: SAFE DEPOSIT BOX – HOW LONG: DURATION OF OWNERSHIP
  • Records of auto service/repair – WHERE: HOME FILE – HOW LONG: DURATION OF OWNERSHIP
  • Jewelry and other valuable items – WHERE: SAFE DEPOSIT BOX – HOW LONG: DURATION OF OWNERSHIP
  • Inventory of household goods and appraisals (include rental property) – WHERE: SAFE DEPOSIT BOX; COPY IN HOME FILE – HOW LONG: PERMANENT (UPDATE AT LEAST ONCE A YEAR)
  • Auto insurance card and registration – WHERE: IN VEHICLE – HOW LONG: CURRENT ONLY

FINANCIAL

  • Stocks, bonds and other securities – WHERE: SAFE DEPOSIT BOX; LISTING IN HOME FILE – HOW LONG: DURATION OF OWNERSHIP OR LONGER IF NEEDED FOR TAX PURPOSES (USUALLY UP TO 6 YEARS)
  • Bank accounts, account registers, and statements – WHERE: HOME FILES – HOW LONG: DURATION OF OWNERSHIP OR LONGER IF NEEDED FOR TAX PURPOSES (USUALLY UP TO 6 YEARS)
  • Canceled checks – WHERE: HOME FILE FOR NON-TAX DEDUCTIBLE EXPENDITURES – HOW LONG: 3 YEARS MINIMUM
  • Savings certificates – WHERE: SAFE DEPOSIT BOX; LISTING IN HOME FILE – HOW LONG: DURATION OF OWNERSHIP OR LONGER IF NEEDED FOR TAX PURPOSES (USUALLY UP TO 6 YEARS)
  • List of credit, ATM and debit cards, credit contracts, agreements, records of credit payments and account statements – WHERE: HOME FILE – HOW LONG: DURATION OF OWNERSHIP OR LONGER IF NEEDED FOR TAX PURPOSES (USUALLY UP TO 6 YEARS)
  • Insurance policies and records of claims made and paid – WHERE: SAFE DEPOSIT BOX; LIST OF POLICIES IN SAFE DEPOSIT BOX – HOW LONG: PERMANENTLY (UPDATE AS NEEDED)
  • Copies of past tax returns – WHERE: HOME FILE – HOW LONG: 6 YEARS MINIMUM
  • Receipts and records of deductible expenses, income, and tax payments – WHERE: HOME FILE (CURRENT) FIREPROOF HOME STORAGE AFTER FILING OF TAXES – HOW LONG: 6 YEARS MINIMUM

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