As a new year begins, it marks an opportunity for entrepreneurs and small business owners to engage in required housekeeping, ensuring all aspects of your business are in order. Consider implementing a detailed small business checklist to facilitate this somewhat daunting process.
This checklist is a practical guide to keep you on track while navigating everything from the ins and outs of tax preparation to an overall business strategy for the upcoming year. Unsure of how long to keep business records? We’ve got you covered with a comprehensive breakdown below.
Tax Returns And Supporting Documentation
It’s wise for individuals to hold onto tax returns and supporting documentation two years from the paid tax date. However, business owners are required to hold tight a bit longer.
The timeframe is subject to change based on the state where you operate a business. Per New York State’s Department of Taxation and Finance, business owners are advised to keep documentation for at least three years after filing a return.
Unlike most of the records on this list, when it comes to insurance docs, such as insurance records, there is no need to hold onto them. However, there is a caveat. If you have an open claim or are entangled in a legal matter with your insurance provider, pause. We suggest keeping a paper trail until the policy ends, the claim is resolved and closed, or you’ve obtained a new policy.
Financial experts recommend maintaining personal bank statements in digital or hard copy format for at least one year. After this period, individuals can shred or delete them to help declutter their records. Align with customary data security measures to avoid any issues.
The same supporting tax return documentation rules apply when considering bank statements used for tax filing purposes — two years for individuals and three years for business owners.
In the U.S., experts recommend keeping employee records for four to seven years following the hire’s departure from the business. These records include, but are not limited to, the following:
1. Payroll records
2. Performance evaluations
3. Benefit plans
4. Background checks (if applicable)
5. Leave of absence (and more)
View the complete list here.
Business Licenses And Permits
According to the IRS, supporting business documents should be kept for at least four years. These include, but are not limited to the following documents:
Gross receipts: Documents that support how much income your business raked in this year. Examples of the documents include the following:
1. Cash register tapes
2. Deposits (cash and credit sales)
3. Receipt books
5. 1099-MISC forms
Purchases: Refer to items purchased to sell to your customer base. Examples include raw materials or parts purchased for manufacture into finished products and should detail the payee, amount paid, proof of payment, date, and a description of the item. Supporting documents may include the following:
1. Canceled checks or receipts of electronic funds transferred
2. Cash register tape receipts
3. Credit card receipts/statements
Remember, the same rule applies to business-related expenses, travel, transportation, and assets. Miscellaneous expenses — from entertainment to gifts — should also be stored.
The importance of record keeping extends beyond filing taxes or the potential of an audit. While that may be top of mind, keeping a paper trail can aid in seeking financing, securing the sale of a business, negotiating with a property owner or landlord, or protecting you through any legal woes.