If you kept all the records your business produces, you’d be buried in paper. However, not having the right record readily available when the IRS calls may be hazardous to your company’s health. That’s why you need to speak with a CPA or other records retention experts before any spring cleaning.
“You want to keep records if you need to produce them for any authority,” says Joel S. Cohn, tax partner at Snyder, Cohn, Collyer, Hamilton & Associates, P.C., a Bethesda, Md.-based accountancy. Snyder, Cohn offers its clients a handy “records retention schedule” to help them decide what paper must stay and which can go.
“Some documents you really need to keep forever,” Cohn notes. Say you bought a building in 1980 for which you took a tax depreciation. Even if you’re audited in 1999, the IRS may request settlement sheets and other documents that always affect your tax treatment. Thus, Cohn’s firm recommends that regardless of what the IRS says today about retention, your company should keep any paper regarding a permanent acquisition or other critical business decision.
Generally, contracts, legal correspondence, audit reports and tax information, insurance records, financial statements, journals, minute books and bylaws for directors and stockholders, property records, stock and bond certificates and trademark registrations need to be kept permanently.
You should keep serial records such as accident reports, accounts payable records, checks, lease agreements, customer invoices, payroll records, purchase orders, voucher registers and such for seven years. Snyder, Cohn suggests you or your CPA research applicable state and local retention schedules and add a year to each just to be on the safe side.
Nonlegal correspondence, bank reconciliations, deposit slip duplicates, purchase orders, requisitions and the like may be disposed of after one year.
Cohn cautions that “There is nothing beyond argument,” especially for well-heeled litigators at government regulatory agencies. Storage is a business decision, he acknowledges, but “barring costs, it’s always better to have this than to be scurrying around later on.”
Electronic storage is an option, he adds. The IRS has rules on where such retention is a viable alternative. Your CPA should be able to find out which records are covered and what standards are in place.
