An accountant can explain how your business can meet these requirements and the penalties you may face for failing to do so. Small businesses are more likely to be audited than individual taxpayers. They’re also targets for lawsuits, even after their operations come to an end. In both events, you may need access to your business’s documents and financials to validate your claims and defend yourself against accusations of wrongdoing. Once you’ve closed your business, many of your obligations come to an end.
Keep these records on hand for a year if you need them to support your current-year tax preparation or as proof of income when making a large purchase. When it comes to taxes, it’s best to keep any tax records for at least seven years. However, there are circumstances where they can go back as far as six or seven years, for example, if you underreported income by 25% or more. State statutes of limitations can vary, so check with a tax professional on the limitations in your state.
This means that if your business closes down in 2017, you will need to keep your documents (which you submitted as part of your tax return on 31 January 2017) until 31 January 2022. Her Majesty’s Revenue and Customs (HMRC) requires you to keep accurate records when operating your business, regardless of whether you are a sole trader or a limited company. These records include sales, purchases, expenses, cash books, mileage records, and bank statements.
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- Large companies that do business in multiple states or internationally may benefit from laws in some states that allow them to shield their records from scrutiny.
- Organizations should start by determining which records must be retained and for how long.
- To understand our main question better – how long to keep business records, we should first understand the difference among the most common categories of business records.
- However, it would be best to consider the defined statute of limitations for specific legal challenges and disputes.
- But technical issues such as hardware failures can render your files inaccessible, and digital files introduce new cybersecurity risks.
Public businesses have different obligations to stockholders that require making some records public. Document disposition when the retention period has expired should also be addressed. Other key ownership and business documents should be kept permanently, including deeds, titles, property records, and any contracts. Federal laws demand businesses to keep employee records for different minimum periods. In addition, the record-keeping provisions extend when an employee files a complaint against the company.
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How should I store my records?
ERISA – The Employee Retirement Income Security Act requires that most corporate and employee pension plan records be kept indefinitely. However, instead of stockpiling everything, it’s smarter to have an overall plan for keeping your records to make sure you keep the important stuff. However, it would be best to consider the defined statute of limitations for specific legal challenges and disputes.
Electronic records
By learning what needs to stay and what’s free to go, you can minimize the amount of materials you accumulate over time. The IRS also says that it can come after your business for failing to report income for up to 6 years after filing and for up to 7 years if you took a deduction on a bad debt. That’s why most accountants recommend that you hold on to your tax return and all supporting documentation for seven years from filing.
- These are federal- and state-generated documents that show a business is registered, inspected regularly, and/or principles are compliant with state licensure regulations.
- The question is, “What records do you have to keep – and for how long?
- Other digital storage options include external hard drives, like HDDs and SDDs, which are compact solutions for storing massive amounts of electronic data.
Be ready for an IRS audit.
These records include timesheets, employee information, and benefit payments. If you are a small business owner in Southeast Wisconsin, contact Nolan Accounting to handle your financial needs. They can handle your daily accounting and bookkeeping needs, payroll, and tax prep. Nolan Accounting can ensure that your business records are kept properly at all times, as per IRS requirements. When consulting statutory or regulatory information, employers should note that published guidelines outline minimum retention periods.
This is mainly due to the Period of Limitations, which is the time during which you can amend your tax return, or during which the IRS can perform an audit on your return. If documents are still “active”—you need to hold onto them for reference—place them in your home filing system by topic. You can scan paper records onto your computer, download files that are already digital, or even take pictures and upload them to your computer or accounting software. Keeping accurate and organized business records is key to managing your finances, complying with IRS requirements, and protecting your company. While you may trust your team members, you should still limit access to sensitive files to only those who need it. Many online secure filing systems log the timestamp of users who access certain documents, so you can keep a steady paper trail of user access.
He said taxpayers should document and attach retirement savings contributions to their tax returns and supporting documents like W-2s or 1099s. He explained that doing so ensures that all of one’s transactions in a given year are validated. According to a Federal Trade Commission (FTC) report, over 3.2 million consumer reports were filed with the Consumer Sentinel Network in 2019, and 20% of them involved identity theft. Throwing away documents with your trash exposes your information to anyone willing to do a little dirty work to steal your identity.
For the past 3 years, she’s specialized in time, location, and mileage tracking. Outside work, she enjoys yoga, swimming, and unwinding with her cats while listening to Leonard Cohen’s music. With no steadfast rule on retention, you can follow the mentioned regulations and good practices to keep your business compliant and protected. For a complete list of records and how long to keep them, download our PDF guide here.
Uniform Preservation of Private Business Records Act sets a standard of three years for archiving documents unless no other retention period is defined. Under this law, the destruction of files with a specific retention period does not constitute an offense. However, destroying files in less than three years may pose risks to the business. To understand our main question better – how long to keep business records, we should first understand the difference among how long should you keep business records after closing the most common categories of business records. These categories also help us quickly manage and access documents when we need them.
Unlike statutes of limitations, statutes of repose definitively bar claims after a set period of time, regardless of when a defect is discovered or an injury occurs. Most statutes of repose run from the date of substantial or final completion, though some statutes use other trigger dates (including written acceptance or occupancy). Most states (as of this writing, 46) have an applicable statute of repose, which range from four to fifteen years.
Is keeping business records important?
You will likely pay a fee for this service, but it’s a small price to keep your personal information safe. If you have financial records or documents you aren’t sure you’ll need, err on the side of caution. Here’s a breakdown of documents to save, based on the time they should be kept. Depending on the nature of your business, it may also be wise to retain insurance policies permanently since claims can occasionally arise from acts that occurred many years in the past. (This is particularly true of environmental claims.) Keep a copy of the policy to establish the potential for coverage.
Many take advantage of this opportunity to “offshore” their headquarters and perhaps use it as a strategic advantage so competitors are unable to examine any available records. When two businesses collaborate on a product, service, or event, it’s key to memorialize roles in writing. That way, if anything goes wrong, there is a record of responsibility.