How Long Do You Have to Keep Company Records?
Most companies generate huge amounts of paperwork and records. In many cases, the more records you maintain the better, as long as the paperwork is filed in an organized fashion. Nonetheless, there’s bound to be a time when your small business starts outgrowing its file cabinets or runs out of space for bankers’ boxes in the records room. Before you begin indiscriminately purging them, know the guidelines for how long you should keep company records.
In most cases, the Internal Revenue Service requires that companies hold records related to taxes for three years. Copies of tax returns should be kept indefinitely. And tax records should be kept for longer in many situations -- such as when your small business doesn’t file a return, or if it files a fraudulent return, in which case you should maintain records forever.
In addition, if you fail to claim income and it’s less than 25 percent of the gross income reported for the year, you should hold onto them for six years. Hold onto employment tax records, such as those relating to FICA taxes and federal unemployment tax, for four years after you pay them.
The Better Business Bureau recommends holding onto bank statements for three years, and Bankrate suggests storing them for at least seven years. Records of bank reconciliation reports need be maintained for only two or three years, and duplicate bank deposit slips should be held for three years. Cashbooks and expense reports should be kept for seven years, and petty cash statements and "spiff tickets" -- records of immediate cash bonuses paid to employees -- need to be held for only three.
Most companies purge employment applications every year, though most other employee records must be held much longer. Hold your small business's commission reports for seven years past the date they were created, and hold payroll tax documents for three years. Maintain employee personnel records for seven years beyond the worker’s termination date, and hold onto accident reports and settled claims for the same period.
All property records should be held permanently. This includes stock and bond registers – hold them until you dispose of the asset – and all property records, such as deeds and mortgages, including blueprints and costs. Licenses and permits that apply to each property should also be maintained forever. Don’t overlook intellectual property records, either: Maintain records of your small business’s copyrights, trademarks and patents forever.
While your accounting department produces records of other types, such as property and tax records, it also produces many records for internal use. Most of these records should be held for seven years, including general journals, bills of lading, purchase orders and accounts-receivable ledgers. If you are audited by an independent firm, maintain the audit report permanently in your files. General ledgers should be maintained forever.