One of the services we provide our clients are to organize their records and help them understand what records they need to keep and for how long. There is a always a cost associated with retaining records whether it’s paying for additional storage, taking up storage in an existing facility that could be put to better use (opportunity cost) or personnel costs in maintaining records. There can also be costs associated with scanning and shredding documents. Eliminating unnecessary record storage can result in a cost savings. Keeping the correct records can protect your client in the event of an audit or a lawsuit where being able to identify and produce records quickly can save money and time.
Common sense should be exercised when deciding what to keep. Generally you must keep records that support items on your tax return until the statute of limitations runs out which is generally three years from the due date or from the file date, whichever is later. Listed below are guidelines for how long records should be kept:
Employee Earnings: Minimum of four years to meet state and federal requirements
Employee Time Cards: At least three years if your business is subject to the Fair Labor Standards Act (engaging in interstate commerce).
Personnel: Three years after employee termination.
Employee business expenses: Keep all documentation for travel and transportation expenses with supporting mileage logs and receipts.
Sales Tax Returns: Varies by State; California requires four years. Check with your tax professional for specific state requirements.
Business Property: Backup records that substantiate the cost and deductions associated with business property must be maintained to determine the basis and gain (or loss) on any sale. Records should be kept for as long as the asset is owned plus 7 years after the sale.
Completed Tax Returns: FOREVER is recommended, but at least 6 years after they are due or filed, whichever is later.
You can always keep an electronic copy of your records as opposed to keeping a paper copy. Scan and store the digital copy on your company’s computer or on a backup hard drive. It should be easily accessible by authorized personnel.
Also, if tax returns are not filed, you are required to keep all the records necessary to prepare your tax returns.
Record retention is an important function to protect you down the road. Develop a systematic method to label and store these items and your life will become much easier should you ever need to retrieve them. To help organize and implement a record retention program, call TGG Accounting. We can help.Written by: Nancy Brzezniak TGG Accounting