Critical Record Retention Tips

BusinessLegal

  • Author Andy Sokol
  • Published November 7, 2010
  • Word count 577

No doubt, the most sensitive kinds of documents small businesses keep track of are also the most ambiguous to purge. Many small business owners use accounting software programs or have their own accountant keep their books. When it comes to records retention, the volume and type of records you keep should determine how long you keep a paper trail.

Avoiding an IRS audit is paramount to the small business owner, but entrepreneurs often anticipate future litigation from former employees, payment conflicts with vendors or errors within your own accounting system. Whether you prepare your own books or use an outside consultant, retaining your accounting systems records for the correct time frame

Here are the guidelines for financial documents that small business owners must retain for specific time frames, courtesy of the New Jersey State Society of Certified Public Accountants (NJSCPA):

Permanent Records – Balance sheets, financial statements, check registers, cash disbursements and receipt records, income tax returns, payroll tax returns, sales tax returns, profit and loss statements, journal entries, general ledgers, and investment – sales/purchases.

Seven Years – Accounts payable, accounts receivables, bank statements and reconciliations, vendor invoices, petty cash records, purchase orders, expense reports and charge and cash sales slips.

Four Years – FICA/income tax withholdings.

Three Years – Bank deposit slips and budgets.

Corporate Records and Fixed Assets

Whether you’re conducting an internal audit of your own or hiring an outside auditing firm, your fixed asset records (all receipts and correspondence related to your copiers, computers and the like) need to be kept forever --- assuming you are depreciating their value each year with the IRS.

There are a few notable exceptions, though:

Internal Audit Records (six-year retention)

Charitable Contributions (seven-year retention)

Accounting Correspondences (five-year retention)

Human Resources and Payroll

Depending on your number of employees and employee turnover, human resources and payroll records can be abundant, overwhelming and growing by the day. But keeping these records can help protect your business during employee disputes.

Most of the human resources and payroll records must be kept while the person is employed with your company and can then be disposed of as follows:

Permanent Records – Retirement plan agreements and employee W-2 forms.

Ten Years – Worker’s compensation benefits, employee withholding exemption certificates and payroll records.

Seven Years – Attendance records, medical benefits, performance records, personnel files, payroll checks and time reports.

Five Years – Safety reports, garnishments and life insurance benefits.

Three Years – Family and medical leave and contractors (from date of contract completion).

Record Storage and Purging

Keeping your records can consume a massive amount of space. Luckily, there are companies that provide safe and secure document storage and management. By using one of these services, you can reduce your office clutter and save an additional 25 percent of filing cabinet space.

In order to access the most used records, small business owners should keep at least the past two years of records in the office. This will allow you to easily find the information you are looking for — whether it is to compare costs and/or contracts — to make better decisions for your business.

With the sudden increase of identity theft, it is imperative that you store and dispose of your documents in accordance with both federal and state regulations. Many document management and storage companies can assist you in properly storing and purging your records. For those who are tackling record retention without the assistance of an outside company, consult your CPA for proper storage and disposal compliance.

A veteran document management services consultant, Andy Sokol is a small business owner specializing in scanning and copying services for litigation professionals and other highly-specialized businesses.

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