Tax season is officially over and many people are wondering how long they should keep some of their documentation. There are different recommendations depending on the type of document you have. Even with the advent of electronic storage, the dilemma of record retention guidelines has not gotten any easier.
How Long Must Each Record be Kept?
While there are not absolute rules for determining the holding period for many types of records, there are some general guidelines contained in federal and state government publications. For certain types of records, there are government regulations that mandate a required retention period. The following page contains a list of general guidelines for your reference.
How are Records Properly Retained?
Businesses should adopt written record retention policies addressing which records should be retained, for what length of time, and in what manner. The policy should also address electronic records, including provisions for periodic backups and archiving of e-mail and other electronic information, as well as the transferring of electronic information to a read-only format where appropriate.
The policy should provide for document disposition when the retention period has expired. Finally, a specific individual should be given responsibility—and authority—for assuring implementation and compliance with the policy.
Accounting and Tax Records
You must keep records to support income, expenses, and credits you report on each income tax return until the statutory period of limitation for that return expires.
Generally, the IRS can audit a tax return for three years after the date it was due or the date the tax was paid, whichever is later. However, if there is a major understatement of income, they can audit for six years after the due date (or almost seven years after the tax year). For that reason, you should keep most income tax records for seven years.
Depending on the nature of your business, it may also be wise to retain insurance policies permanently since claims can occasionally arise from acts that occurred many years in the past. (This is particularly true of environmental claims). Keep a copy of the policy to establish the potential for coverage.
Corporate documents should be kept indefinitely. These records include: Articles of Incorporation, By-Laws, Stock Records and Board of Directors’ Minutes.
Employee records, including applications, I-9 forms, and performance reviews, should be retained for at least seven years following termination of the individual’s employment. In the event of a charge of discrimination, any documents should be kept for four years after resolution of the charge, if that is longer than the seven years after termination of employment. With respect to job applicants who have not been employed, applications, resumes, and replies should be retained for one year after completion.
For a complete table of record retention recommendations please refer to our white paper by clicking here.