Feature:
Record Retention… Rules!

The paperless society is always “just” around the corner, but dealing with record retention requirements hasn't gotten any easier, even with the advent of faster, cheaper, larger computer storage.

Federal and state agencies don't always agree on how long documents should be kept and the rules seem to change from year to year. Hanging on to everything forever might sometimes seem the best approach, but storage is expensive. On the other hand, trashing everything early and often may be a risky path to neatness.

Policy Makes Perfect

It is important for small business owners not only to keep good records, but also to know which ones to retain and for how long. A poor system can prevent managers from finding critical operating information, and can also pose a security risk.

A good record-retention policy should separate the business's records into categories, and then specify the types of records retained for each category and the minimum retention periods. Management should help employees understand the policy and know where to access records, and review the policy periodically to make sure it continues to meet business needs and legal requirements.

A Lifelong Sentence

Which records should a business retain indefinitely - for the life of the business? Copies of federal income tax returns, annual financial statements, general ledgers, fixed asset records and corporate documents (charter, bylaws, stock records, patent and trademark applications, labor contracts, pension records, etc.). Keeping these basic business records enables business owners to track their progress, identify problems, and take advantage of all possible tax deductions. It is also recommended that small businesses keep careful records regarding any automobile, life, fire, health and other insurance coverage they hold.

Time off for Good Behavior – Three to Six Years

Regular business documents that support financial statements and tax payments—such as canceled checks, payroll checks, bank statements, invoices, purchase orders and personnel records—should be retained for at least six years. These time periods allow for a margin of safety in meeting the IRS rules, which also address the means that may be used in retaining records. Detailed payroll records must be retained for at least four years from the time the relevant taxes were due or were paid, whichever was later.

View this table for recommended retention periods for specific documents.

There are clearly no easy answers, and records retention management is one of the burdens faced by businesses of all sizes.

For more information, contact David Kirkup at B2BCFO.com, 770 845 6897 or via email at dkirkup@b2bcfo.com or contact a local B2BCFO Partner at www.b2bcfo.com. B2BCFO: The nation's largest Chief Financial Officer (CFO) firm serving mid-market companies.

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