Record-keeping can seem confusing, but it doesn’t have to be. Below we answer the most common questions we get about record-keeping practices for businesses.
What counts as a record?
Any information and data that could be needed in the future. In the context of accounting, this typically includes things like:
- Receipts
- Invoices
- Contracts and Agreements
- Bank Statements
- Credit Card Statements
- Communications Detailing Financial Information, Negotiation, and Exchanges
- Expense Records
- Financial Statements
- Check Registers
- Budgets
- Ledgers
- Cash Books
- Audit Reports
- Profit & Loss Statements
- Leases for Rentals and Property
- Anything that details financial aspects of your business
Why should I care about record retention?
Having inaccurate or missing records can cause issues with many aspects of running your business. It can impede your ability to secure funding, investment, and loans, cause problems in the event of an audit, leave your business vulnerable in cases of litigation or contract issues, and affect so many other elements of your business.
You should care because not keeping records puts your business, your livelihood, and your future at risk!
How many years do you have to keep accounting records?
The IRS indicates that in most instances, accounting records should be retained for at least 7 years. This is echoed in GAAP standards (the accounting principles that all CPAs follow).
What kind of records should I keep?
Anything related to expenses, purchases, business operations, assets, travel, transportation, entertainment, and gifts, gross receipts, and employment taxes and tax payments should be kept. This includes:
- Invoices
- Receipts
- Deposit Slips
- Canceled Checks
- Sales Slips
- Paid Bills
- Cash Register Tapes
- Deposit Information
- Invoices
- 1099’s
- Proof of Payment
- Credit Card Statements
- Account Statements
- Proof of Electronics Fund Transfers
- Asset Acquisition Paperwork
- Deductions Taken
- Depreciation Details
- Asset Use
- Sale Price
- Closing Statements
- Tax Records
We recommend speaking with your CPA for details on exactly what you should be keeping.
You can read more about this here: https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep
How long should I keep employment tax records?
The IRS requires you to retain employment tax records for at least 4 years after filing the 4th quarter for the year.
Do I need a document retention policy?
Yes. Every organization should have a document retention policy and procedures for retaining, storing, and disposing of data. If you do not have a policy, speak with your CPA.
How long do I need to keep accounts payable records?
7 Years.
How long do I need to keep accounts receivable records?
7 Years.
What’s the best way to dispose of records I no longer need?
Because financial data is considered sensitive data and can be used for fraud and identity theft, it’s recommend to shred your records.
Can I deduct expenses related to record storage?
This is something you’ll want to discuss with your CPA in order to get accurate information. However, typically you can deduct expenses for filing cabinets and boxes, storage facilities, hard drives, and cloud-based storage. Again, that is general and not always accurate. Please don’t take deductions without speaking to your CPA first!
