As America celebrates National Small Business Week, May 23-29, the Oklahoma Society of Certified Public Accountants reminds small business owners good record retention is not only required by law, it is also a key to efficiently running a business. Proper record retention for both paper and electronic records is a financially sound practice that will save you and your business time and costs, as well as help you avoid the fines and penalties of a violation. It will also allow you to make well thought-out and informed decisions about your business’s future. How long should you hang onto those documents? OSCPA members offered several guidelines for how long business records should be kept.
Whether you prepare your own books or use an outside consultant, retaining your accounting systems records for the correct timeframe can be key when doing an internal audit or during an IRS-mandated audit. Below you will find examples of financial documents that must be retained for specific time frames.
Permanent Records: Balance sheets, financial statements, check register, cash disbursement and receipt record, income tax returns, payroll tax returns, sales tax returns, profit and loss statements, journal entries, general ledger and investment – sales/purchases.
Seven years: Accounts payable, accounts receivables, bank statements and reconciliation, 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 & Fixed Assets
All corporate records must be retained permanently, excluding internal audit records (six-year retention), contributions (seven-year retention) and accounting correspondences (five-year retention).
Also, all fixed asset records, such as your business’s property register, depreciation schedules, property appraisals and plans and blueprints, must be retained permanently.
Human Resources and Payroll
Depending on the number of employees and your employee turnover, human resources and payroll records can be abundant and overwhelming. However, 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 then can disposed of after the outlined timeframe, which begins after termination. According to the guidelines, businesses can purge some of these records after three to seven years.
Permanent records: Retirement plans 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).
Due to the extensive nature of employee records, consult your CPA to discuss your records and the appropriate record retention period.
Record Storage & Purging
Keeping your records can consume massive amounts of office and storage 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 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 needed information, like costs and 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 to 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.
It is important for every business to have a clear and well-documented retention and destruction policy. It is equally important that this policy is communicated to all personnel and equally applied. The record retention guidelines are extremely comprehensive for small businesses, and there are many more facets for compliance then listed above. Based on the type of business and your business’s structure, your CPA can help you formulate a record retention program appropriate for your business.
Whether you are trying to get a handle on your record keeping or address another important financial concern, you can visitwww.KnowWhatCounts.org for financial advice or for a free CPA referral and free consultation.