Company Records: What to Keep, What to Dump

After that, you can destroy the supporting documents but keep your business tax returns permanently. You may need them to prepare future tax returns or for how long do businesses need to keep records other purposes. You’ll need to hang onto your business tax returns and all supporting documentation until you can no longer be audited for that tax year.

• Shredding your documents is the best way to protect your business’s sensitive information and safeguard against identity theft.
• Hang onto your company formation documents like articles of incorporation or articles of organization.
• The IRS also says that it can come after your business for failing to report income for up to 6 years after filing and for up to 7 years if you took a deduction on a bad debt.
• Even if you take the time to wipe a computer completely clean, there are usually ways that these records can be restored, and you may be held liable if you did not follow the correct procedures.

Plus, let’s not forget that paper records can fade, and are susceptible to damage. Telling the IRS that “the dog ate my tax records” simply won’t fly. Be sure to check the terms of each account to see how long they keep historical records. If it’s shorter than 7 years, you may need to download and save an annual statement in order to have it on hand for tax recording.

Which records should I keep when closing my business?

LegalZoom provides access to independent attorneys and self-service tools. Use of our products and services are governed by our Terms of Use and Privacy Policy. If you have employees, you’ll want to get a clear understanding of what documentation related to hiring you need to keep.

Closing a business includes many steps, such as canceling licenses and permits, and sometimes transferring ownership. It’s always best to consult with your accountant during a business transition. Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents.

What Business Records Should You Keep?

Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date. In fact, you can be downright inundated with records… from tax returns and expense receipts to invoices, cancelled checks, payroll records, bank statements, meeting minutes—the list goes on. As a business owner, you likely have in storage various documents, such as tax returns, personnel records and bank statements. Unfortunately, there isn’t a steadfast retention rule that applies to all kinds of records, meaning you need to categorize your files and create a document retention policy (DRP). Business owners typically deduct costs for property and equipment that are used for the business, which reduces their tax bills.

• You’ll also want to keep titles, shareholder meeting minutes, permits and licenses, insurance documents and any contracts.
• One part of being a business owner means keeping records for everything, including what you’ve earned, what you’ve spent and where you’ve traveled.
• An accountant can explain how your business can meet these requirements and the penalties you may face for failing to do so.
• These documents contain information you need to record in your books.
• Besides employee tax information, you should retain the personnel records for every person you employed.

Before you toss them, double check to see whether anyone else you do business with might need them. Creditors, business lawyers, and insurance companies all sometimes require you to keep records longer than the IRS does. In addition to employee tax information, you should keep all human resources files for any employee, current or former. These records include anything like resumes, job applications and descriptions, performance reviews, and any employee files.

If you have records connected to property

Our partners cannot pay us to guarantee favorable reviews of their products or services. Instead of worrying whether you should be keeping or getting rid of them, you can archive them permanently. If you’re deducting meals and entertainment, it’s even more complicated. You might have to submit a list all of the people who were there with you when the expense occurred, and what you talked about (really—the IRS wants to know if you talked shop).

You can organize business receipts using filing cabinets and folders. Or, you can opt to use a digital system or receipt scanner to store receipts. The general rule of thumb is to keep business receipts for as long as the IRS can audit your records. Keep your business receipts for at least three years in case you need to show proof of purchases or sales. Digital file management systems offer many advantages, though companies must keep paper originals of some documents. Electronic files take up much less physical space, allow for easier access, and enable quick backup.

Importance of keeping receipts

The fewer receipts you keep, the more likely your accounting books will be off. Add receipt information in your books as soon as possible for an accurate financial snapshot of your business. In some cases, the government may look further back into your records. The IRS may audit six years worth of financial information for businesses suspected of fraud or tax underpayment.

• These include your company formation documents, such as articles of incorporation (for corporations) and articles of organization (for LLCs).
• While it is often best if paper records are kept in a fireproof and waterproof safe or safety deposit box, there are special considerations that must be used for records that are kept electronically.
• You also don’t need to keep documentation if it’s for a transportation expense and documentation isn’t easy to get.
• You’ll thank yourself the next time you do your taxes or get audited.
• If you’re a corporation, you’ll also need to keep any director or shareholder meeting minutes and a stock ledger.
• In case of an audit, keep records that back up your tax return information.