Brian Brammer

Small Business Recordkeeping: To Toss or Not to Toss (and When)

Small Business Recordkeeping: To Toss or Not to Toss (and When)

by | Nov 18, 2020 | Articles, blog, Business, For Businesses, Latest News, Newsletter Article

2 minute read
Any business owner knows that good business recordkeeping is critical for the administrative tasks that keep your business running day to day, but the Internal Revenue Service (IRS) also requires you to keep certain financial records for your business for specific periods of time. This article aims to provide a general framework for knowing which business documents to file and which are okay to toss.

Bank Statements

Bank statements prove that your business is generating revenue. You can typically access monthly bank statements online. You should keep these statements readily available throughout the year as well as keeping bank statements for at least seven years.

Payable and Receivable Invoices

Receivable invoices act as receipts of gross income while payable invoices act as expense documentation. Both are used as the basis for profit and loss statements (P&L), which the IRS will request in the case of an audit. Hold onto both payable and receivable invoices for seven years.

Business Tax Returns

The IRS can audit your business for three years after a filing, but that can be extended to six years if the IRS suspects a substantial error on your return, so it’s wise to hold onto these documents for at least six years.

Payroll Tax Records

These records include wages, pension payments, time sheets, tax deposits, benefits and tips. Documentation must be kept for at least four years after the tax due date or the date they were actually paid, whichever is later.

Employee Files

When an employee is terminated or leaves, you should hold onto their records for at least seven years. This includes employee tax information, resumes, job applications, job descriptions, performance reviews, and any additional files for that employee. If an employee experiences a work-related accident or files a claim against the business, their records should be retained for up to 10 years after worker’s compensation was paid or the claim was resolved.

Job Applicant Information

These records must be kept for at least three years. Additionally, the US has various federal and anti-discrimination laws that pertain to hiring and recordkeeping, like Title VII, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA). If your business is over a certain size (15 or more employees for Title VII and ADA; 20 or more employees for ADEA), retain the hiring records for each position for at least one year from the date of hire.

Ownership Records

Some records need to be on file for the duration of your company’s existence. These include business formation documents, annual board meeting minutes, by-laws, permits, leases, shareholder agreements, stock certificates and property deeds.

Accounting Records

Financial statements, check registers, profit and loss statements, budgets, general ledgers, cash books, and audit reports should be kept for a minimum of seven years. Some accountants recommend keeping these documents permanently.

Miscellaneous Records

Credit card statements, canceled checks, cash receipts, and checkbook stubs should all be stored for at least seven years.

About the Author

Brian Brammer, CPA and partner of Brammer & Yeend Professional Corporation, has been in public accounting since 1989 after graduating from Ball State University with a Bachelor of Science degree in accounting. Brian provides services to small businesses and individual clients in tax, accounting, business development, forecasts and financial analysis.

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