The records and documents that businesses should have if they need to address most situations include:. Keep business income tax returns and supporting documents for at least seven years from the tax year of the return. The IRS can audit your return and you can amend your return to claim additional credits for a period that varies from three to seven years from the date you first filed.
These time frames are known as "periods of limitations. The IRS suggests retaining employment tax records for a minimum of four years after the tax becomes due or has been paid, whichever is later. Employment tax records include:. Business owners typically deduct costs for property and equipment that are used for the business, which reduces their tax bills. Owners might also claim deductions for the depreciation of property or equipment, or they might amortize costs like franchise fees.
Depreciation is a calculation of the declining value of a tangible asset over time. Amortization refers to a similar calculation when the asset is not tangible. Because these types of records are usually part of your tax return, you should follow the same rules for tax records, counting the year that you disposed of the property as the start of the period of limitations. Keep deeds for property and titles to vehicles among these records. When you sell one business property and buy another in an exchange such as a Exchange, you will want to retain the records on the property you sold as well as the property you acquired until the period of limitations runs out on the new property.
Depending on your business and the state where you are located, you might have many types of HR records that fall under the jurisdiction of different government agencies. Generally, you will need to keep the most common types of forms and documents, like employment and job application records, family leave documents, performance reviews, and benefit election documents, for three to five years, depending on the record and the state where your business is located.
Workers' compensation records. Requirements and laws for retaining records on employees who are injured in the workplace vary by state, and you should check with the responsible state agency for guidelines on keeping these records. On the federal level, the Occupational Health and Safety Administration OSHA requires businesses to retain records on workplace injuries for five years.
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Documents of this nature should be retained for the entire time that the rights in the intellectual property exist. This can range from 10 years to a lifetime plus 70 years, depending on the intellectual property and the nature of the right.
In addition, if litigation has been commenced, or if there is a threat of litigation, documents which are relevant to the litigation should be retained for at least the period of the litigation. If you don't, you can commit an offence in Victoria under the Crimes Document Destruction Act and may be prejudiced in defending any claim brought against you in any state of Australia.
While it is all well and good to say that documents must be retained for seven years, 12 years or indefinitely, there are a number of issues to consider when determining where and how documents should be retained. There are consequences for failing to comply properly with document retention requirements and businesses face a number of legal and commercial questions which must be properly considered before deciding on a course of action.
Record-keeping is a boring, but important business activity, and if you make the wrong choices, you risk litigation, succession planning problems and the wrath of the tax man. Understanding how long should you keep business records will help you avoid these problems. The Internal Revenue Service has established some basic record-keeping rules for tax documents.
Outside the tax arena, there's remarkably little guidance about how long you should keep business paperwork. Most lawyers, accountants and bookkeeping services recommend keeping original documents for at least seven years.
As a rule of thumb, seven years is sufficient time for defending tax audits, lawsuits and potential claims. These periods are not offered as final authority, but as a guide.
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