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Don’t Throw That Away

By Mark Landsbaum

 

Which business documents should you keep, and for how long? You’d better know the answers because getting it wrong can be costly.

If challenged by the IRS, you’ll probably lose if you can’t produce supporting documents. Disagreements with clients and vendors similarly are weakened without documentation. Without records, employee disputes are your word against the disgruntled hireling’s.

Unfortunately, there is no single set of rules that tell you how long you need to hold onto important documents. Complicating matters, statutes vary from state to state.

Judee Slack, an enrolled agent and small-business advisor in Southern California, points out, “many states make adjustments based on the IRS results.”

So what does the IRS say about document retention? Nothing very straightforward.

The IRS advises that, “your recordkeeping system should...include a summary of your business transactions,” such as accounting journals and ledgers to show gross income, deductions and credits. Supporting business documents include purchase and sales records, payroll, invoices, receipts, sales slips, paid bills, deposit slips and canceled checks.

The IRS also says that the length of time to keep any document depends on “the action, expense or event the document records.”

That’s not much help.

To find the answers to the nagging questions of what to keep and for how long, we consulted several sources: the IRS, the American Institute of Certified Public Accountants and CCH Tax and Accounting, a leading provider of business, legal and tax information.

Before adopting any of these retention tips, check with your legal and tax advisors. And remember, when in doubt, don’t throw it out.

Keep Permanently
  • General ledgers and journals

  • Payroll records, including W-2s, 940s, 941s

  • Year-end financial statements

  • Tax returns and supporting documents

  • Depreciation schedules

  • Partnership and shareholder agreements

  • Articles of incorporation, by-laws, meeting minutes and other governance documents and licenses

  • Copyright, trademark and patent registrations

  • Retirement plan records

  • Cash receipts and disbursement ledgers

  • Employee handbooks and training manuals

  • Mortgages and deeds

  • Tax and legal correspondence

Keep For 10 years
  • Bank statements and cancelled checks

  • Accounts payable documents

  • Accounts receivable documents

  • Invoices and billing information (to customers and from vendors)

  • Time reports

  • Leases

  • Contracts with clients and suppliers

Keep For Seven Years
  • Expense reports

  • Employee agreements or contracts (keep for seven years after termination)

  • Employee termination records and the personnel file of the terminated employee

  • Documents related to litigation (keep for seven years after termination of legal proceedings), although some material should be kept indefinitely if needed for licensing, regulatory or insurance purposes

  • Inventory documentation

Keep For Three Years
  • Employment applications

  • Employee disability and illness benefit records

  • Expired insurance policies

  • General correspondence

 

Mark Landsbaum is a freelance writer, author, journalism instructor and avowed pack rat. He has every document he’s ever written, touched or read filed not-so-neatly away in the eventuality he may some day need to retrieve them.