Setting Up a System – What to Keep, What to Toss
Accounting is full of paperwork. To keep your ofﬁce from being overrun, you need to know which papers you can safely toss, because there are some your company is required to hold on to for a pretty long time.
The government, through various agencies, sets schedules for how long your company has to maintain speciﬁc types of documents. Those requirements change a lot and can differ from state to state. Your insurance company may also require you to hold on to certain pieces of paperwork, especially if you have insured speciﬁc items in your policies. In addition to all the outside requirements, though, there are some documents that you should hang on to for the long run. Since there is no single unchanging comprehensive set of rules for record retention, common sense has helped develop some generally accepted standards. You can also check with your accountant to ﬁnd out if there are things he wants you to keep.
The biggest must-keep stack comes courtesy of the IRS. It requires every- one to maintain all the information related to an income tax return for three years after the return was filed. That’s because the IRS has three years to select a return for audit under normal circumstances (though it has extra time for cases such as suspected fraud).
For long-term storage records, you can collect all the information pertaining to a single closed year and box it up. Make sure to label the box on all sides (so you don’t have to go digging through a pile to see if that’s the box you need), and store it somewhere safe and dry. That will at least keep your ﬁle cabinet free for the current stuff.
There are some paper records that you need to hang on to for only a little while. The exception to this guideline is when a speciﬁc document may be needed to settle a legal claim. Otherwise, these documents will probably never see the inside of a long-term storage box, and clearing them out helps free up room for incoming paperwork.
Here’s a list of papers you can get rid of after one year:
- Bank account reconciliations
- Duplicate deposit slips
- Receiving documents
- Postal delivery records (such as return receipts)
- IRS Forms I-9 (keep for one year after employee termination)
Three- to Five-Year Documents
The next group includes documents to keep for at least three years, maybe four or ﬁve. After that, you can shred them and send them to the landﬁll or have a document bonﬁre. The exception, of course, is any that you will need to settle a pending legal claim.
- General business correspondence
- Employment applications (hired or not)
- Expired insurance policies
- Petty cash records
- All supporting documents for income tax returns
- IRS Forms W-4 (four years)
- Occupational safety logs (ﬁve years, kept for OSHA)
There’s a long list of paperwork that you should keep around for at least seven years. These items are often packed up and sent to long-term storage in boxes with like documents. When their time is up, you can get rid of the whole box without having to go through the individual papers.
- Accounts receivable ledgers
- Customer invoices
- Accounts payable ledgers
- Vendor invoices
- Purchase orders (to vendors)
- Payment vouchers
- Bank statements
- Canceled checks (most; some will fall in the forever group)
- Contracts (seven years after expiration)
- Employee records (seven years after termination)
- Inventory records
- All payroll and payroll tax records
Keep These Documents Forever
There are some pieces of paper that will be around indeﬁnitely, at least for the life of your business. These should be stored somewhere waterproof and ﬁreproof, somewhere they aren’t likely to be destroyed by accident. For the more critical documents, such as deeds and asset titles, you may want to invest in a safety deposit box or similar vault-type storage to ensure their safety.
- Chart of accounts
- General ledgers
- Cash ledgers
- Critical correspondence
- Asset depreciation schedules
- Year-end ﬁnancial statements
- All journals
- Business licenses
- Loan documents (even after they’re paid off)
- All property records (deeds, titles, appraisals, bills of sale, improvements, etc.)
- Workmen’s compensation documents
- Income tax returns
- Independent auditors’ reports (from accountants)
In addition to those documents, you should pull out and save certain canceled checks. These include checks you wrote to pay tax bills, for asset purchases (down payments, for instance; not ongoing loan payments), legal claim settlements, and others of like importance.