As I was organizing the thousands of documents from many years of tending to small businesses, I couldn’t quite put my finger on what I needed to keep vs. what I needed to shred. Back in the “old days”, we printed and documented EVERYTHING and I knew one day I would have to part with all of this extensive handiwork. So, I called upon my friend, John Fioritto, CPA, to weigh in on what is the IRS approved answer. Of course, he sent me everything and more, but all great information that I wanted to pass along to my readers as we near the end of the year. (more to come on year-end best practices.)
Mind you, if we are talking about 4 or more years ago, everyone may have been keeping these items in paper form. Now, we snap a photo of our receipt and it resides in the cloud.
Records include:
- Cash register tapes
- Bank deposit slips
- Bank statements
- Invoices
- Credit card charge slips
- Vendor invoices
- Canceled checks
In addition to the transactional paper trail, there would also have been copies of monthly, quarterly and yearly reporting, along with their supporting documents. These may have included:
- Profit and Loss
- Balance Sheet
- Bank Reconciliation Report
- Accounts Receivable Aging
- Accounts Payable Aging
- Payroll Summary Reports
- General Ledger Report
- Trial Balance Report
- W-4, W-9, W-2, W-3, 941, 940, Sales, Use and Withholding coupons and reports ……. and so on
THATS ALOT OF PAPER!!!
So how long do you keep these in your possession? It depends on the period of limitation, which is the period that you can amend your tax return. Those time limits are as follows:
- If you owe additional taxes, then the period is 3 years after the due date of the tax return (not 3 years after you filed it, theres a difference)
- If you did not report income, but you should have AND it’s 25% of your gross income, then the period is 6 years.
- If you file a fraudulent return or do not file at all, WHOA, you’ve got to have a bigger basement than I do as you will have to keep all records indefinitely!!!
- If you file a claim for a credit or refund, then the period is 3 years or 2 years after the tax was paid
- If you file a claim for a loss from worthless securities, then the limit is 7 years.
So, bottom line for a business, if you’ve been really really good at record keeping and filed accurate and timely tax returns, count on 7 years to keep your records. Be mindful of how to dispose of these records, even if shredded. And if anyone is considering a bonfire to dispose of these documents, I’ll bring the marshmallows!
