How Long Should I Keep My Business Records? - Tax Professionals Member Article By Dennis Jao
Posted by Dennis Jao

How Long Should I Keep My Business Records?

How Long Should I Keep My Business Records?

We recommend that you keep some documents and files longer than others. It really depends on the document and your business.

With the exception of some guidelines from government agencies, you won't find many hard and fast rules on how long your business records are to be kept. But you can create a record-keeping plan based on a document's purpose and future situations that might arise.


Reasons for keeping business records

When you think about keeping documents and records, the first thing that probably comes to your mind is an IRS audit. Although you will need to file income tax returns and supporting documents if you have verified or want to amend a previous tax return, there are many reasons to withhold other types of documents and records. Here are a few:

  • If you are involved in a dispute or legal action, you may need written minutes of meetings and agreements to support your position.

  • If you decide to sell your company, potential buyers will want to review historical records as part of their due diligence.

  • Creditors can request receipts, sales history, and other documents when applying for financing.

  • Having a clear paper trail of previous leases, insurance policies, and other contracts can strengthen your position when dealing with landlords, insurance companies, and other suppliers.


What records should I keep?

Documents and records that businesses should have if they are to resolve most situations include:

  • Bank account and credit card statements

  • Business formation documents

  • Company asset records

  • Employment records

  • Insurance policies and records

  • Licenses and permits

  • Loan documents.

  • Registers and Ledgers 

  • Rental or mortgage deeds

  • Sales receipt 

  • Shareholders meeting minutes

  • Tax declarations and supporting documents


How long do you need to keep business tax records?

Keep company tax returns and supporting documents for at least seven years in the tax year of the return. The IRS can review your statement and amend it to require additional credit for 3-7 years from the date of the first filed return. (These times are known as the "periods of limitations.”) But it's a brilliant idea to use seven years as a guide to keeping these records.

If you don't file a return, the IRS can come after your business at any time.

Here are some examples of supporting documents:

  • Check Register

  • Expense reports

  • Financial Statement 

  • Invoices

  • Ledgers

  • Profit and Loss income statement 

  • Sales Receipts


How long do you need to keep employment records?

The IRS suggests keeping employment tax records for at least four years after the tax is due or paid, whichever is later. Employment tax records include:

  • 1099 documents for independent contractors.

  • Names, social security numbers, addresses, dates of employment, and employment of employees

  • Salaries, annuities, and pensions paid to employees at maturity

  • Tips and fringe benefits paid if these are applicable to your company

  • Withholding taxes, including FICA and Medicare


How long should you keep a record of your business assets?

Entrepreneurs often deduct the costs of goods and equipment used for business by reducing taxes. Owners can also claim deductions for depreciation of property or equipment or waive fees, such as franchise fees. Depreciation is a calculation of the decreasing amount of a tangible capital asset over time. Depreciation refers to a similar calculation when the asset is not a tangible capital asset. Since these types of documents are usually part of the tax return, you should always follow the same rules for tax records, counting the year you own the property as the start of the limitation period. Keep documents and vehicle titles in these records.

When you sell one commercial good and buy another on an exchange, like the 1031 exchange, you want to keep track of the good that you have sold and the good that you have bought until the expiration date of the new good.


What records do you need to keep permanently?

In addition to retirement and pension documents, permanently maintain company incorporation documents, articles of association, annual reports, general meeting minutes, and business licenses and authorizations to help explain to buyers, creditors, and others the actions and decisions on which you have taken while running your business.

Your EIN (Employer Identification Number) or Tax ID number is like your Social Security number. It can never be assigned to another company, and you must keep it at all times, even if your company is no longer operational.

If you have an "occurrence-based" insurance policy, you'll want to keep it indefinitely. Occurrence-based policies cover you for as long as the policy is in effect on the date the occurrence that gave rise to the complaint occurred. If you discover damage or any other loss after you cancel or change your policy, your coverage will remain in effect. (On the contrary, a "claims made" policy will only cover you if the policy is in force at the time the claim is made.)


What other documents to keep?

You can also have leases for your business premises, insurance policies, and business loan records, among other documents. Rents and insurance policies can be used to help you position yourself when it comes time to renew, and you want to keep them until replaced.

You must keep the business lease and loan documents relating to tax deductions for the seven-year period described above. Also, keep a record of satisfied loans for seven years.

You should not keep bank and credit card statements for more than a year unless they contain documents that you use for your income tax return. If so, follow the rules for tax documents described above.


What about electronic registers?

In today's digital age, paper and electronic documents are acceptable forms of documentation. However, make sure that the scanned recordings in your computer files are readable.

The IRS recommends saving electronically printed documents in the event of a flood, fire, or other disasters. Choose an electronic storage method, whether on your computer, in the cloud, on a USB device, or on an external hard drive, that offers maximum security and protection against identity theft. Ensure your computer is password-protected, you don't click on unknown links, and consider using an encryption program. Also, choose a well-protected cloud storage program and use a unique, random, and complex password with two-factor authentication when needed.


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Dennis Jao
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