How Long Do You Really Need to Keep Your Financial Documents? Say goodbye to your box of receipts -- here is a breakdown of which financial documents you really need to hold on to and which ones you can shred.
Opinions expressed by BIZ Experiences contributors are their own.
When it comes to keeping financial documents, a policy of "better safe than sorry" often makes for a messy and disorganized office. Professional organizer Regina Leeds had a client who had been traumatized by an IRS audit. As a result, she saved everything.
"Every billing statement, every letter, every receipt– I couldn't get her to part with a single piece of paper," says Leeds, author of One Year to an Organized Financial Life (Da Capo Press, 2008). "She had boxes of receipts going back decades."
While Leeds says there are financial documents you should keep for life, most can be held three years or less. Here are some quick guidelines on how long to hold the most common small business financial documents:
Safe to Shred
Unless it shows proof of a deductible expense, many documents and receipts can be shredded monthly or annually, says Leeds. For BIZ Experiencess, these include:
- ATM receipts and deposit slips after they've been reconciled with your bank statement
- Monthly and quarterly bank statements if year-end statements are received
Keep for Three Years
Material that supports tax returns should be saved for three years. Leeds says this might include:
- Income-related documents, such as invoices, cash register tapes, credit card charge slips, bank deposit slips, 1099s and W2s
- Proof of deductible purchases and expenses, such as receipts, invoices, cancelled checks, mileage logs, and credit card slips or statements
- Receipts for charitable contributions
As businesses become more paperless, receipts and statements are often delivered online. Some information is available for a limited time, however. Make sure you check with your account holder to understand its policy, and save or print documents that might be needed in case of an audit.
While three years is standard, according to the IRS, it can perform an audit up to six years after taxes are filed if a "substantial error" is suspected. In the case of fraud, there is no limitation on an audit. Leeds says if you are worried about being audited beyond the three-year limit, you should hold your documentation longer.
Related: Tips for Writeoffs, Obamacare and Keeping the Tax Man at Bay
Save for Six Years
- The IRS recommends keeping filed state and federal tax returns for six years; Leeds says she saves her indefinitely for "peace of mind"
- Payroll records
Documents To Be Kept Indefinitely
Greg Jones, CEO of Bookkeeping Express, a franchise bookkeeping service for small businesses, says documents that are relevant to business operations and assets should be stored indefinitely. These include:
- Partnership documents
- Contractual agreements, such as vendor relationships, marketing, or commission and royalty structures
- Property records, including intellectual property, for as long as you own the asset plus three years after year of the tax return that includes its sale
- Deeds and titles
He adds that you should check with your financial or tax advisor for details specific to your situation as rules change and can be industry- or location specific.
In preparation of year-end tax filing, Leeds suggests that small business owners set up a system using file folders organized by category.
"Most businesses will have a file marked 'Operating Expenses,' 'Invoices,' 'Clients' and perhaps 'Payroll,'" she says. "It's easy to cull year-end figures for your CPA or bookkeeper by simply pulling folders out of the file and replacing them with new ones each January."
