Tax time can be dreadful for businesses and individuals when digging through old paperwork and files for the necessary documents to complete your business’ tax returns. Many times, people don’t know the retention rules for these documents, so extra documents are kept for years and years, but this only complicates things when searching for the current year’s files.
The rules for retention are not always black and white. The IRS sets some basic record retention standards for tax records, yet lawyers, accountants, banks, and government agencies all have different requirements and guidelines for how long to retain business records depending upon your individual business circumstances.
In addition to paper documents, electronic documents need to be considered in your record retention plans as well. There are some basic retention rules outlined below, but it is always best to double-check with your accountant, bank and industry agencies before planning for document destruction…
- Business Income Tax Returns and Supporting Documents: A final copy of your business income tax returns (and supporting documents) are often kept permanently to help prepare future or amended returns. The IRS can come after your business for failing to report income for up to 6 years after your filing, however there are circumstances where this can be extended to 7 years. Most businesses retain their final copy of tax returns for a minimum of 7 years.
- Employment Tax Records:If you have employees, the IRS suggests that you retain all employment tax records for a minimum of 4 years. These tax records include: your employer identification number, amounts and dates of wages, annuity and pension payments and tax deposits, your employee’s personal information and dates of employment, and records of employee benefits.
- Other Key Business Documents: In addition to tax returns and supporting documents, your business also has other documents that need careful consideration when determining a retention period. Financial statements, expense reports, annual reports, corporate by-laws and amendments, board of director information, annual meeting notes, and any other important business documents should be kept for a minimum of 7 years, and are often kept permanently. These documents can be scanned/imaged and digital files can be retained indefinitely.
- Human Resources Files: You may have numerous other employment files related to current and former employees and applicants to your firm. Excluding employment tax records, files relating to current employees should be retained while they are working for you and at least 7 years after a current or former employee has left or been terminated. For any job applicants who were not eventually hired, keep these files for at least 3 years. In the event of any lawsuit involving a current or former employee or applicant, always consult with your attorney, but files should be retained for at least 10 years after the lawsuit has been filed.
When planning for disposal of old documents, it is important to consider the risk of identity theft, and damage to your business if the documents get into the wrong hands. Confidential information is not only held on paper, but also on computers, hard drives, servers, and other electronic devices. It is important to remember to properly destroy outdated electronic devices as well. The best way to protect sensitive business information is to hire a AAA NAID certified destruction company.