How Long Should You Keep Business Records?

Keep careful track of all your income and where it comes from. It’s important to separate your business and personal receipts and your taxable and nontaxable income. The tax arena provides the greatest framework for how long tax preparation documents and returns should be retained. The Internal Revenue Service requires you maintain copies of your tax returns and supporting documents for three years. However, the IRS can audit you for three years after a filing and in some cases that period extends to six years if suspected of making a substantial error on your return. Therefore, keeping tax documents for at least seven years is considered sufficient time in order to defend any tax audits, lawsuits, or other potential claims.

Additionally, your state or locality may even have rules around keeping old business permits, safety documents, employee records, annual reports and more. As your small business grows, so will the number of records you need to keep. A business record could include a tax document, bank statement or employee performance review.

Why is it necessary to maintain business records?

With this in mind, be sure to speak with a small business attorney to obtain a complete list. Reconciled is an award-winning organization and one of the fastest-growing accounting firms in the country. Copies of all current insurance policies should be maintained in separate files and kept for 10 years after the policies expire.

We are a full-service firm offering a wide range of services, including auditing, tax preparation, estate planning, and more. Our team of experienced professionals is ready to work with you to achieve your financial goals. The suggested retention periods shown above are not offered as a final authority, but as a guide to determine your needs. This is especially important if you plan on destroying any important legal, business, or financial paperwork. While some documents should be kept permanently, others can be disposed of after a certain amount of time has passed.

Tax Returns and Other Accounting Documents

For example, the IRS may ask to see these documents to validate your tax returns or deductions. In general, the IRS requires businesses to keep records until the period of limitations, or statute of limitations, runs out. The period of limitations is the amount of time that you have to make changes to your previous tax return or which the IRS can assess more tax. Every receipt saved could translate into a deduction on your tax return. There is no set formula or format defined by the IRS, and you can use your personal record-keeping system.

Companies can safely discard most documents seven years after filing the related tax return—or seven years after the due date, if later. Certain industries, however, have specific requirements when it comes to documenting their practices and record-keeping. For example, home health agencies need to use Electronic Visit Verification to comply with Medicaid-funded home healthcare visits. Therefore, before creating your record retention policy, you should check all the relevant regulations that might apply to your industry. Below, we’ll review the legal retention requirements for the most common business records and discuss best practices. To fully understand how long to keep business records, let us start with the basics and move from there.

tips for handling and protecting business records

Creating operating agreements allows LLC owners to have more control over their businesses. With no steadfast rule on retention, you can follow the mentioned regulations and good practices to keep your business compliant and protected. However, it would be best to consider the defined statute of limitations for specific legal challenges and disputes.

That said, you may not need these documents for paying your taxes or filing for tax returns. However, it is always safe to be sorry, just in case you may need them for tax purposes in any future disputes or investigation by the IRS. And by “carefully,” why are prepaid expenses considered an asset we mean “digitally.” Cloud technology has made it much easier to keep your business records in order. Use accounting software to save time on record-keeping and reconciliation. Update your books from anywhere with online tools like FreshBooks and Xero.