Record Retention of Financial Documents: What to Keep and How Long
June 1, 2022
Ephraim Fishman, CPA
When it comes to managing financial and legal documents, there is no one-size-fits-all answer. When in doubt, it is always best to err on the side of caution and keep a document longer than the minimum required time. As we are in the digital age, scanning documents is the most efficient and effective way to store your documents.
See below for some general guidelines, that provide “best practices” for managing financial records.
Generally speaking, you’ll want to keep your records organized and separate. That means financial records are separate from legal records and personal records are separate from any business documentation. This ensures your records stay organized and are easy to access, but also helps to protect you in the event of an audit or legal action. Generally speaking, the more segmented, the better.
What Business Records Should I keep and for how long?
Keep Permanently
- By-laws and corporate minute books
- Capital stock, bond records, proxies
- Current contracts, mortgages, notes, leases
- Copyrights, trademark registrations, patents
- Legal correspondence
- Deeds, easements, bills of sale
- IRS audit reports
- Labor contracts
- Property appraisals
- Property records (costs, depreciation, schedules, blueprints, plans)
- Retirement and pension records
- Building improvement records – they can lower your capital gains tax when you go to sell
Keep 5 Years
- Accounts payable and receivables invoices, ledgers, and schedules
- Bank statements, deposit tickets
- Expired contracts, mortgages, notes, leases, stock and bond certificates
- Expense reports, Insurance documents (settled claims, accident reports)
- Inventory records
- Notes receivable ledgers and schedules
- Payroll (time cards, earnings records, garnishments), Terminated personnel files
- Sales contracts
- Documents relating to payment to vendors and employee reimbursements
- Withholding tax reports
- Canceled Checks
- Closing statements, purchase and sales invoices, proof of payment insurance records and Form 2119, expired contracts, mortgages, notes, leases
- Form K-1s
- Investment records (expired options records, stock and canceled bond certificates)
- Tax returns, Form W-2 and worksheets, revenue agents’ reports and other documents relating to determination of income tax liability
Keep 2 Years
- Bank reconciliations
- Correspondence with customers and vendors
- Purchase orders
- Purchase and sales requisitions
- Shipping and receiving documents
What Personal Records should I keep and for how long?
Keep Permanently
- Birth Certificate
- Contracts, mortgages, notes and leases
- Legal correspondence
- Custody agreements
- Death certificates
- Deeds, mortgages, bills of sale
- Divorce papers
- IRA contributions
- Marriage Certificate
- Military discharge papers
- Real estate records
- Retirement and pension records
- Social Security cards
- Home improvement records (these can lower your capital gains liability during a resale)
Keep 5 Years
- Canceled checks
- Closing statements, purchase and sales invoices, proof of payment, insurance records and Form 2119, expired contracts, mortgages, notes and leases
- Form K-1s
- Investment Records
- Tax returns, Form W-2 and worksheets, revenue agents’ worksheets and any forms relating to income tax liability
Keep 2 Years
- Bank reconciliations
How to Safely Store Your Documents
Safeguarding your personal and business information is important for a few reasons. First and foremost, it helps to protect the integrity of your information. Second, it ensures that in the event of an audit or legal inquiry you’re prepared with the necessary information to protect yourself and your business. Storing your documents in a safe place helps to protect them from theft, damage, and loss.
What to do with documents you no longer need?
When disposing of documents, businesses need to make sure that they follow any required guidelines, which includes shredding any documents that contain financial information, personal information, or medical information. Shredding your documents is the best way to dispose of them because it ensures complete destruction of your records. You should shred any documents that contain financial information, such as bank statements, credit card statements, and tax returns. Reminder: if your business closes, you are still responsible for managing the security and final destruction of any business or personnel records possessed by your business.
Need Specific Guidance
If you are looking for specific guidance on document retention requirements, please feel free to reach out to your LMC professional.
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