How Long Do We Have To Keep Business Records?

It can get confusing when thinking about business records, organizing them and keeping them safe. Do you want to know how long you can keep business records? Continue reading to find out.

There are numerous corporations that have no idea how long they have to keep business records, especially in this paperless era. It is true that record-keeping is not only a demanding task, but also a boring one. Nonetheless, it is an essential business activity, and if you make the wrong decisions, you risk litigation, problems with succession planning and tax issues. Therefore, it is imperative that you know how long you should keep business records which will assist you in steering clear of these problems.

Sometimes, it is the lack of physical space for storage purpose for organizations to keep important records that can be a problem. However, if you want to, you can keep your records safe in the form of a digital soft copy, as opposed to keeping it in a hard copy. The main purpose is to manage these records and ensure that they are clearly readable.

The amount of time for which you should keep a report relies upon the activity, cost, or occasion which are records. For the most part, you should keep your records that back an item of income, allowance or credit appeared on your tax returns until the period of limitations for that tax form runs out. The period of limitations is the timeframe in which you can revise your tax return form to guarantee a credit or discount, or the IRS can evaluate additional tax.

To learn more about how long we have to keep business records, let us read on ahead.

Table of Contents

What Are Business Records?

Everyone knows that keeping business records safe is essential. But do we know what kind of documents we need to save?. ‘Business documents’ can mean many things, such as:

Legal documents
Accounting records
Bank statements
Insurance documents
Permits and licenses

Any document that records a business dealing or transaction is a business record. It is always a smart idea to keep the records of your corporation safe in a file for some time. Later on when you need to provide the authorities with any document, you can simply search through your files and find out the specific record you need.

Why Do You Need To Keep Business Records?

Oftentimes, it has been reported that owners of small businesses do not remember that they have to keep good records. However, it is important to keep in mind that bad record keeping can result in various issues.

Following are a some of the ways in which you can keep business records that can be of help:

Make sure you keep separate records for your personal and professional expenses
Keep yourself prepared for tax returns
Track your tax liability
Make sure that you keep yourself up to date with your business progress
Keep track of all deductible expenses
In case of an audit, provide the authorities with all the necessary documents

It is quite common for individuals and business purchases to get tangled up. This is almost certain in the event that you do not keep great records. Receipts are essential business records to keep. They can keep your own and your business purchases isolated. Moreover, they can likewise assist you with overseeing the source of your costs.

A few records are for your own information only. That does not mean you should not keep them. Improvement reports on business and sales can enable you to succeed. You do not have to keep them by law, however it’s insightful to cling to them for some time so you can check your development. Likewise, you can utilize the data to make enhancements to your business.

It assists you with keeping the correct records when documenting expense forms. If in case you report a cost or pay on your taxes, you have to archive it. By and large, these are similar records to the ones you use to plan ordinary fiscal reports. Keep them sorted out and store them in some place where they can be easily accessible.

It is very important to keep good records, especially in cases where you own a small business. These records will be the ones that will help you project your tax liability. Once you have kept such records safely, you can make estimated tax payments.

How Long Do You Keep Important Records

How long do we have to keep business records? The following list mentions some important records and how long you need to keep them:

Business Tax Returns And Supporting Records

Business tax returns and other supporting documents need to be kept until the IRS can no longer audit your return. Most of the time, the IRS can keep you under examination for three years after a petition. However, if in case the IRS suspects that a significant error was made by you on your tax returns, then this time period of three years extends to six years.

Payroll Tax Records,

Payroll tax records include:

time sheets,
salaries,
pension payments,
tax deposits,
benefits and bonuses

These records need to be kept safe for a minimum of four years after the due date of the taxes or after the date on which you actually paid those taxes, whichever one comes later.

Current Employee Files

The files on your current employees will have all the information an employer or a corporation needs concerning its employees and it is essential that they are retained for a minimum of seven years after an employee resigns, retires, or is fired. On the other hand, if an employee suffers an accident at the workplace and files a complaint against the company, in such cases it is recommended that the employee records are kept for at least 10 years after the claim is settled.

Job Applicant Information

The records that contain information pertaining to job applicants must be kept for a minimum of three years, even in cases where the individual was not hired.

Ownership Records

Ownership records include:

documents containing information on the formation of the business
time spent in annual meeting
property deeds
stock ledgers
by-laws

Such business records should be kept permanently (or in some cases indefinitely) in the company’s archives.

Accounting Records

How many years do you have to keep accounting records? Such documents should be kept for at least seven years. However, there are some documents that accountants recommend to be reserved permanently. These include:

statements regarding profit and loss
statements regarding finances
check registers
budgets
cash books
general ledgers
audit reports

Operational Records

A s far as operational records are concerned, the include:

statements concerning bank account
statement concerning credit card
records of canceled checks
cash receipts
checkbook stubs

These records also follow the footsteps of accounting records and need to be kept for a minimum of seven years.

How Long Do I Need To Keep Limited Company Records?

The guidelines for limited company records are somewhat unique, and there is more documentation to consider. Along with records like sales documentation, personal salary, business expenses, money paid to and withdrawn from the business, bank statements, purchase invoices, sales receipts, cheque book stubs, the directors of a limited company, need to keep back other records as well including but not restricted to, liabilities, details of business resources, credits secured against the corporation’s benefits, and investor exchanges.

All in all, limited company records must be kept for at least six years from the end of the accounting period. However, in other cases, some documentation needs to be kept for a very long time, sometimes even ten years. Such documentation includes:

statutory books of the company such as company registers
the details of resolutions and annual, monthly, or weekly board meetings
VAT MOSS (Mini One Stop Shop) records

How Long Should Small Business Owners Retain Tax Records?

Small business owners should keep their tax records for at least three years. The IRS mandates that records be retained “as long as needed to prove the income or deductions on a tax return.” This three-year period aligns with the statute of limitations, which determines how long you can amend your tax return or how long the IRS can audit it. Once this period lapses, you can discard your tax records and supporting documents.

However, some records need to be kept for longer than three years:

Past tax returns: Retain for three years.
Receipts: Keep for three years.
Miscellaneous financial records: Maintain for three years.
Employment tax records: Store for four years.
Omitted income records: Keep for six years.
Bad debt or worthless securities records: Hold for seven years.

Sticking to these guidelines ensures you stay compliant and avoid potential issues with tax audits.

What Receipts Should You Keep For Taxes?

It would have been far easier if the IRS just took your word, but unfortunately, that is not the case. In order to support the incomes, deductions and credits that you report on your tax returns, you need to present proper documentation to the IRS. Given below is a list of the important records that you should definitely keep:

Receipts
Invoices
Cash register tapes
Bank statements
Deposit information which includes cash and credit sales
Receipts of credit cards
Cheques that have been cancelled or other evidence of payment
Evidence regarding electronic funds transferred
Petty cash slips for small cash payments
W2 and 1099 forms
Accounts payable and receivable
Payroll records
Tax filings
Previous tax returns
Other recorded proof that backs an item of income, deduction, or credit shown on your tax return

There are some documents that you would not always need to show proof of your tax records, however, it is still important that you keep them in your archive for emergency situations. These documents include:

Business permits and licenses
Yearly reports
Any contracts you have signed with clients, vendors, contractors, employees, etc.
Articles of incorporation
Documents regarding company health and safety
Any other regulatory documents

How Many Years Of Business Records Should I Keep?

The Internal Revenue Service (IRS) has formed some fundamental rules for record keeping of tax documents. Other than the area that deals with taxes, there is very little guidance on how many years of business records you should keep. Since most lawyers, accountants and bookkeeping services suggest that original documents should be kept for at least seven years, most companies are also recommended to keep documents from the past seven years on file. As a general criterion, seven years is enough time for defending tax audits, lawsuits and potential claims.

How Long Should I Keep Documents After Closing My Business?

Government offices, for example, the Internal Revenue Service (IRS) and state depository offices, are the most probable agencies that could demand different business archives from corporations that have been shut down. Keeping a wide range of business related records will be important if the need emerges to prove transactions, claims, and data documented on expense forms. No one can tell when old business records might be valuable, so it is prudent to keep all business records as long as it is plausible.

When it comes to businesses that have been closed for some time, it is imperative that you keep business records for at least three years, starting from the day they were filed. These records include:

cancelled checks,
bank deposit slips,
financial records
credit card statements
general ledgers

On the other hand, certain documents need to be kept for at least six years in any case. These include:

bank statements
stock records
solicitations,
records of sales
sales register tapes,
W-2s
1099s
other tax documenting reports

In the event that your business was set up as a company, keep month to month and quarterly corporate budget summaries for at least rate three years.

Some records need to be kept indefinitely or as long as you can. These include:

payments concerning employees (personnel-related payments)
documents associated with personnel related payments like:
worker’s compensation,
records pertaining to pension
employee income tax withholdings

If an employee of a corporation that has been shut down files a claim for unemployment benefits, applies for a new job, or has inquiries concerning his/her time of employment in that particular corporation, having these records available on hand, will be advantageous.

Moreover, all corporate related documents should also be kept indefinitely despite the fact that the company is no longer in business. Such documents include:

the certificate of incorporation,
board of directors meeting minutes,
labor contracts,
stock transactions,
patents and trademarks, and
any court-related documents.

Receivable and payable records of company resources, finances and accounts ought to be kept. The IRS’s legal time limit is of three years, starting from the date upon which the tax forms in which to audit returns, were filed. However, as stated previously, keeping records providing evidence for deductions and income ought to be held, if conceivable, for an indefinite amount of time.

Conclusion

While most records can be discarded over time, some are crucial to keep. Retain dynamic lease agreements, business operation permits, and stock declarations as long as possible. You never know when you might need them.

Organize these important documents separately from others to always know where they are. Being meticulous with record-keeping avoids future headaches. If space is a concern, opt for tall cabinets to make the most of your vertical office space. Alternatively, consider digitizing your hard copy documents. Digital records can save space and make retrieval easier.

Being proactive with your record-keeping is always better than dealing with disorganization later. By choosing the right storage solutions and digitizing when possible, you ensure that important documents are safe and accessible.