Lyndi DeVries, Business Services Manager at TD&T, provides some guidance regarding industry and IRS standards for record keeping.
“Our clients ask all the time how long they need to keep records,” according to Lyndi DeVries. Advice differs somewhat depending on the source, but some common-sense guidance can help you answer this question for yourself and your company.
What Records Do You Need to Keep?
The nature of your business will probably determine to a great degree what you have to keep and what additional records you should consider keeping. For example, if your business serves the medical field, you may need to consult both government regulations and industry guidelines offered by professional organizations that serve the industry. It’s always a good idea to consult both your CPA and your attorney to confirm which records you need to retain and for how long.
Most businesses need to retain these basic documents permanently:
- Annual financial statements
- Corporate documents (incorporation, charter, constitution, bylaws, minutes)
- Stock records
- Licenses, patents, trademarks, and registration applications
- Documents relating to intellectual property
- Documents substantiating fixed asset additions
You Should Always Keep These for Business or Personal Needs
Whether you need to plan for your business or your own personal records, there are some documents you should always retain. These include:
- Income tax returns, income tax payment and estimate checks
- Legal documents
- Important correspondence
- CPA audit reports
You should maintain all of the following personal documents:
- Trust documents
- Vital personal records, such as birth, death, marriage, divorce, and adoption
- Retirement and pension records
What Does the IRS Require?
The IRS website gives this advice: “The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out…The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.” The IRS goes on to specify periods from 3-7 years, depending on various circumstances. You can review the specific time periods at: https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
The IRS also provides direction on records relating to property: This includes capital expenditures and Section 179 expenses, for example. If you have listed an item with a seven-year depreciation as its recovery period, you should keep the records past that date or until you dispose of the property.
The IRS can audit income tax returns up to six years after they’ve been filed later if they suspect you have understated your gross income by more than 25% in a given year. Some accounting professionals suggest keeping tax records, and any documentation that relates to taxes, for at least seven years, in case you are selected for audit. You should maintain the following kinds of records for seven years:
- Bank records
- Personnel and payroll records
- Purchase and sale records
- Travel and entertainment records
- Vendor invoices
- Settled accident claims
- Mortgages, deeds, and leases on sold property
- Records on sold stocks and bonds
If you have misplaced or lost a tax return and need one, you can request a free tax return transcript from the IRS website: https://www.irs.gov/individuals/get-transcript. The transcript will provide most of the line items from the return. If you actually need the entire return with all attachments, you can request that from the IRS using Form 4506, but you’ll have to pay a fee. You can find information about this using the same transcript link above.
While many of these recommendations relate to business needs, you may also want to apply some of this information to your personal records. Some kinds of records that you may wish to consider:
- Pay Stubs – Keep until you reconcile them with your W-2. Some companies provide additional information on their pay stubs or similar documents that do not relate to W-2s. In that case, you may wish to retain them longer.
- ATM and Deposit Slips – Keep until you reconcile them with your bank statement.
- Credit Card Receipts – Keep until you reconcile them with your credit card statement. For some larger ticket items, you may wish to retain longer, especially if they relate to warranties.
- Sales Receipts – Keep for the life of the warranty or the life of the item on large purchases.
- Property Records, including builder contracts and improvement receipts – Keep until you sell the property. You may also need these records to calculate capital gains on property sold.
- Car Records – Keep until you sell or trade in the car.
- Warranties and Instructions – Keep for the life of product.
- Insurance Policies – Keep for the life of policy.
- Other Bills – Keep until the next bill verifies payment.
Where Can I Find Some Quick References?
The Better Business Bureau has summarized records retention periods for several kinds of documents, based on information provided by the IRS. You can download this schedule in pdf format at: https://www.bbb.org/globalassets/local-bbbs/clearwater-fl-47/clearwater_fl_47/bbb-records-retention-schedule.pdf
The American Institute of CPAs prepared a brochure specifically for small businesses, titled: “Guide To Small Business Recordkeeping.” This helpful document provides advice on how to set up your record keeping, formats to consider and other information. It also includes a series of tables that summarize recommended retention periods by type of document. You can download the brochure here: https://www.aicpa.org/Career/Marketing/DownloadableDocs/SmallBusiness/SBToolkit_RecordkeepingGuide_Spreads.pdf
TD&T Can Help
As with all of your accounting needs, TD&T can assist you in determining which records you and your business need to retain. We will be happy to meet with you and help you determine the best approach to developing and implementing a records retention strategy and procedures.