Record Retention Guidelines for Businesses

We have a nationwide network of document management professionals who know the ins and outs of document retention. Retention guidelines are a basic component of any records management process, so it’s key to know which apply to you. Document retention guidelines can vary greatly from state to state, so understanding your state’s specific guidelines are key to maintaining compliance. Creating different retention policies for each possible scenario may prove impractical. Retaining tax returns and other records for seven years—starting from the later of the filing date and due date of the related tax return—offers a convenient rule of thumb. Knowing how long to keep tax returns and other records can help businesses respond to information requests.

• You may choose any recordkeeping system suited to your business that clearly shows your income and expenses.
• You might want to check to ensure you’ve fulfilled any additional obligations before you make the purge.
• Just like your services and marketing activities may have Standard Operating Procedures (SOPs), your internal document filing process needs its own SOP.
• Digitizing your records is also a great way to avoid accidentally tossing them in a move or an overzealous fit of spring cleaning.
• Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions.

How to Dispose of Old Financial Documents

You need to keep records related to your personal or business tax returns. The statute of limitations to examine your return and mail a Notice of Proposed Assessment (NPA) adjusting your return is usually 4 years from the due date of the return, or the date the return is filed. Conduct regular audits of your business documents to ensure compliance with retention schedules and identify documents that can be disposed of safely. Establish clear protocols for secure document destruction that protect confidential information while meeting legal requirements for document disposal. Maintain official legal documents for your business permanently, including articles of incorporation, articles of organization, bylaws, operating and partnership agreements, and amendments. These documents establish your business’ existence and may be required for banking, legally binding contracts, or legal proceedings throughout your company’s lifetime.

Saving your business tax records

Below, we look more closely at different types of employee records and break down the time requirements for each. Understanding how long to keep business and personal tax records, receipts, and financial documents can help prevent penalties, support deductions, and ensure financial security. Your business document journey starts with proper formation and continues throughout your company’s growth. LegalZoom provides comprehensive support for business document management through our business formation services, compliance and regulatory documents, and business document templates. And our business formation services help ensure that your corporate documents are properly prepared and filed, so you can start off on the right how long do you need to keep business records foot. Yes, digital documents are generally legally valid when properly created and maintained.

Business Documents: What to Keep, Store, and Secure

Under certain circumstances, the duration of keeping tax records for a business may extend beyond the standard three years. Here are some circumstances where you might want to hang on to your records for longer. The IRS can inquire about unfiled returns at any time — there’s no three-year period of Accounting Errors limitations if you haven’t filed at all. That’s why it’s important to create a business-wide Standard Operating Procedure that all necessary employees learn as part of the onboarding process. You don’t want to be dependent on one employee for important document storage.

If you do not keep these records, you are liable for the tax, including penalty and interest, if you cannot otherwise prove a sale was not subject to tax. It’s easy to forget about some of last year’s expenses when you’re filling out your tax return. At BILL, we provide business reporting tools that can be used to help plan for tax season, manage cash flow, and analyze every aspect of your company’s performance. These insights can help you refine your strategy and plan for the future, all while ensuring you stay in compliance with tax regulations. Additionally, some of your operational records might be classified as legal documents, which are necessary to demonstrate ownership of your business or provide details about your legal structure. These requirements often extend beyond IRS guidelines to satisfy industry regulators, accreditation bodies, or specific legal mandates.

• These records allow companies to both prepare their tax returns and prove the return’s accuracy during tax audits.
• While record retention requirements vary by industry and jurisdiction, following these key best practices will help HR departments maintain legal compliance while operating efficiently.
• If you didn’t report income when you should have, you’ll want to hold onto your records for six years.
• Some of these business records will directly impact your tax return, while others are simply a matter of maintaining clear records of your business operations.
• Some small businesses might also need to save additional contracts and reports for their own internal records, though the above list will be most important for filing your annual tax return.
• Each transaction in your business bank account should have more evidence to support it.

However, this extends to six years if you’ve underreported income by more than 25%, and there’s no time limit for fraudulent returns or unfiled returns. These extended retention periods accommodate both U.S. requirements and those of foreign jurisdictions, which often have longer statutes of limitations. This applies to all businesses, whether they have a couple dozen employees or just a few. Keeping good records is an important part of running a successful business. Safe deposit boxes used to be a popular method for storing valuables, including essential documents. Not all bank branches offer safe deposit boxes today, but it can be an option if you prefer keeping these documents offsite.

• Your recordkeeping system should include a summary of your business transactions.
• Retaining tax returns and other records for seven years—starting from the later of the filing date and due date of the related tax return—offers a convenient rule of thumb.
• Within this framework, specific types of records have their own retention guidelines or requirements.
• You can scan paper records onto your computer, download files that are already digital, or even take pictures and upload them to your computer or accounting software.
• Because the burden of proof is on you to back up every item on your tax return with documentation, the best approach to recordkeeping for small businesses is to try to keep as many records as you can.

You will need to fill out Form 4506 to request your return, however, which can take up to 75 days to process. Your filing service may also be able to provide a copy of your return. If you can’t find your most current tax return, though, don’t stress. When in doubt, it’s better https://www.bookstime.com/ to be safe than sorry and hang onto records longer than you need to.

• For your most important documents, a standard filing cabinet might not be enough.
• Even with your HR expertise and industry resources, you may still have questions when navigating record management.
• The Internal Revenue Service (IRS) requires businesses to maintain careful records to verify their income and expenses.
• When it comes to taxes, it’s best to keep any tax records for at least seven years.
• Companies can safely discard most documents seven years after filing the related tax return—or seven years after the due date, if later.
• There are also key business documents that you’ll want to keep indefinitely.

What documents do I need for taxes or audits?

You must also keep documents, such as canceled checks, receipts, cash register tapes, purchase orders, and other sales records to support your business records. Generally, you must keep records and supporting documents for at least three years after you file a return. Maintaining thorough tax records serves multiple essential purposes beyond basic compliance. First and foremost, complete records provide the documentation needed to support income, expenses, and credits claimed on tax returns if the IRS questions them. Without proper substantiation, deductions may be disallowed, potentially resulting in significant additional taxes, penalties, and interest. Once you know what types of records you have, it’s time to determine how long to keep tax returns, statements, and other documents.