Accounting Record Retention Guidelines for Businesses

Federal law maintains that you must keep copies of your tax returns and supporting documents for three years. This is commonly referred to as the “three-year law” and leads business owners or individual people to believe that as long as they keep the records for three years they are in the safe zone.

But this could be further from the truth if the IRS believes that you have 25% or more of income not reported; or has an inclination that fraud exist, they may go back six years in an audit.

Here are some guidelines:

Documents To Keep For One Year

  • Requisitions
  • Correspondence with Customers and Vendors
  • Stockroom Withdrawal Forms
  • Stenographer’s Notebooks
  • Duplicate Deposit Slips
  • Purchase Orders (other than Purchasing Department copy)
  • Receiving Sheets

Documents To Keep For Three Years

  • Savings Bond Registration Records of Employees
  • Physical Inventory Tags
  • Time Cards For Hourly Employees
  • Employment Applications
  • Employee Personnel Records (after termination)
  • Expired Insurance Policies
  • General Correspondence
  • Internal Audit Reports
  • Internal Reports
  • Petty Cash Vouchers

Documents To Keep For Six Years

  • Accounts Payable Ledgers and Schedules
  • Accounts Receivable Ledgers and Schedules
  • Employment Tax Records
  • Accident Reports, Claims
  • Bank Statements and Reconciliations
  • Canceled Checks
  • Canceled Stock and Bond Certificates
  • Expense Analysis and Expense Distribution Schedules
  • Expired Contracts, Leases
  • Expired Option Records
  • Inventories of Products, Materials, Supplies
  • Notes Receivable Ledgers, Schedules
  • Invoices to Customers
  • Payroll Records and Summaries, including payment to pensioners
  • Plant Cost Ledgers
  • Purchasing Department Copies of Purchase Orders
  • Sales Records
  • Subsidiary Ledgers
  • Time Books
  • Travel and Entertainment Records
  • Vouchers for Payments to Vendors, Employees, etc.
  • Voucher Register, Schedules

Records To Keep Forever

Federal guidelines do not dictate “forever” keeping tax records, but in many cases there are reasons to retain the following documents indefinitely.

  • Depreciation Schedules
  • Documents substantiating fixed asset additions
  • Contracts, Leases Currently in Effect
  • IRS Revenue Agents’ Reports
  • Audit Reports from CPA’s/Accountants
  • Canceled Checks for Important Payments (especially tax payments)
  • Cash Books, Charts of Accounts
  • Corporate Documents (incorporation, charter, by-laws, etc.)
  • Deeds
  • Financial Statements (Year End)
  • Insurance Records, Current Accident Reports, Claims, Policies
  • Investment Trade Confirmations
  • General and Private Ledgers, Year End Trial Balances
  • Journals
  • Trademark and Patent Registrations
  • Property Appraisals by Outside Appraisers
  • Legal Records, Correspondence and Other Important Matters
  • Minute Books of Directors and Stockholders
  • Mortgages, Bills of Sale
  • Property Records
  • Retirement and Pension Records
  • Tax Returns and Worksheets

grumpy IRS funny picture

Electronic Storage of Accounting Records

In this age of electronic records it has become easier to store records for long periods of time. Keeping copies of tax returns, bank statements, insurance policies, etc. are now easier than ever before. No longer do you need a who floor or storage unit to store your documents. Just make sure you have more than one copy of the files and documents. Do NOT store copies on the same hard drive or online site.

Ways of storing documents electronically:

  • Online
  • Thumb drive or Hard Drive
  • CD

Article: The Best Cloud Storage Services that Protect Your Privacy

FAQ’s regarding Electronic Accounting Software Records (IRS Website)

Words of Caution

Identity theft has become a serious threat to the world of data and records. It is important to minimize your risk and maintain precautions when disposing old records. Consider the services you use when storing documents online to make sure they have proper encryption and do not simply through paper in the trash without shredding.

Special Circumstances

These retention guidelines are provided as general guidelines. Specific holding periods should be under strict scrutiny by management and legal counsel, should there be any pending investigation, contract requirements or regulated industry requirements.

IRS (Internal Revenue Service) online references:

How long should I keep records? 

Publication 583- Starting a Business and Keeping Records (Revised January 2015) 

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