Small businesses often face the burden of knowing what records they should hang onto and for how long. While there are definitely some documents every business should have a record of, there are many others that are not relevant enough to keep. Even the ones that we do keep eventually lose their value and are okay to get rid of. It’s important that any and all business records that are being trashed be destroyed completely.
For some, the idea of destroying records feels absolutely wrong, even when they know they have no further need for them. They may even feel like they are doing something illegal by shredding files and other important documents. These people would rather hang onto these records for as long as possible, going to great lengths and expenses to keep them around.
Others may jump the gun and get rid of records too soon. They may come to regret their decision to destroy records a few years down the road when the IRS suddenly audits them.
One solution that can help both types of record keepers, the keepers and the trash-too-sooners, is to have digital records created. There are actually dozens of companies that offer the service of creating electronic documents from physical ones. This allows businesses to keep records much longer without having to take up too much space. Some of the most common documents that are transferred to a digital file include the following:
- Business Income Tax Returns
- Employment Tax Records
- Business Asset Records
- Bank Statements
- Payroll Records
- Credit Card Statements
- Human Resource Files
- Cancelled Checks
IRS and Accountants
It’s safe to say that the two groups of people we are most likely keeping records for are the IRS and business accountants. There are certain situations that may come up when having an accurate record of statements can make a huge difference. The IRS, for example, can legally come after your business for failure to report income up to 6 years after the filing. It’s best to plan to keep tax records for at least 7 years before destroying them.
Another example is employment tax records. The IRS suggests that businesses retain all employment tax records for a minimum of 4 years after the date those taxes were due or paid, whichever is later.
In many cases, 7 years seems to be the magic number for how long to keep information before destroying it. Some decide to continue to keep the records well past the 7 years concerned that some unforeseen issue could come up down the road. It really comes down to personal preference at that point.
If you’re ever reviewing a specific set of documents and need to know if you are clear to destroy them or not, give Hacker Accounting a call at 602-375-5251. We can help you find the best solution.