Keeping financial records is essential for a business. Keeping clear records of income, expenses, accounts, and tax documents allows you to keep track of your business’s financial health and make improvements where necessary.
Data takes up space. You need to delete old files and records on your system regularly to free up space. How long should records be kept? – This is one of the most common questions business managers ask.
Lawyers, accounting services, and bookkeepers in Santa Rosa recommend preserving original documents for at least seven years to defend against lawsuits, potential claims, and tax audits.
Here is a guideline on how long you should preserve specific business documents.
- Business Tax Returns –Keep business tax returns and supporting documents until the IRS can no longer audit your return for the year (three years after filing the return for the financial year). The time period can extend to six years if the IRS has reasons to believe that you made a major error on your return.
- Current Employee Files – Current employee files should be retained for at least seven years after an employee resigns, is terminated, or retires. If an employee files a claim against the business or gets injured at work, records must be preserved for up to 10 years after the claim is settled.
- Operational Records –Operational records including bank account statements, credit card statements, checkbook stubs, cash receipts, and canceled checks should be preserved for seven years.
- Job Applicant Information –Should be preserved for at least three years, even if you did not hire the applicant.
- Payroll Tax Records –Records relating to payroll, including time sheets, pension payments, wages, benefits and tips and tax deposits, should be kept for at least four years after the date taxes become due or the date you paid them (whichever is later).
- Accounting Services Records –Including check registers, financial statements, general ledgers, cashbooks, and duit reports should be preserved for at least seven years. Many accountants recommend keeping these documents permanently.
- Ownership Records – Any document that can help you establish proof of business ownership should be preserved permanently. Typical examples include business formation documents, stock ledgers and property deeds, by-laws and annual meeting minutes.
Our objective is to give you a rough idea about how long you should preserve these important business documents. Your CPA or tax attorney may come up with different guidelines based on your specific needs and the rules in your industry.
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