Records Retention – A Guide For People Who Like To Throw Stuff Away
Before You Toss Anything Read This Records Retention Guide!
A couple I know wanted information about records retention. They were moving and wanted to know how to get rid of as much paperwork as possible without throwing anything important away. They had owned a small business and retired the year before. They knew that they needed to keep some things, like their personal tax returns, but their question was two-fold, “What records should we keep(?), And, for how long?”
You would think that for bookkeepers that records retention is the kind of information that just comes naturally . . . . Well, some people have a life.
Bookkeeping Tip: If you are moving and still using home office or travel expenses in your business – Track all those moving and travel-related moving expenses!
I checked with my experts in the field (Frank Lilly, CPA, Portland OR, Ross Nichols-DeVisser, Gray Chartered Accountants, Vancouver, B.C.) of records retention and this is what they told me about records retention for your business and personal records:
Records Retention – Keep These Records Permanently:
- Accountant Audit Reports
- Capitol Stock Ledgers
- Cash Books
- Chart of Accounts
- Canceled Checks (Important Payments like tax payments, Property Purchases, Special Contracts and other related materials or information).
- Contracts and Leases Still in Effect
- Correspondence (Legal and Important Matters only)
- Deeds, Mortgages, Deeds of Sale and Property Records
- Depreciation Schedules
- Financial Statements (primarily End of Year -EOY, but other months are optional)
- General and Private Ledgers (and end-of-year Trial Balances)
- Insurance Records, Current Accident Reports, Claims, Policies, etc . . .
- Journals and subsidiary Ledgers
- Minute books, including by-laws and charters
- Principal Residence Purchase and Improvement support
- Tax returns and Worksheets, Correspondence
Records Retention – Keep These Records for Seven (7) Years:
- Accounts Payable and Receivable Ledgers and Schedules
- Canceled checks (normal operating payments)
- Contracts and Leases (expired)
- Expense Analyses and Expense Distribution Schedules
- Inventories of Products, Materials and Supplies
- Payroll Records and summaries, including pension payments and records of any disciplinary action or advanced education opportunities or special information – Toss it and you WILL cry!
- Sales Records
- Voucher Registers, Schedules, Payments, etc . . .
Records Retention – After Five (5) Years You can Retire These Documents:
- Personal tax return support and paid bills. The IRS only holds them for three years, but that doesn’t mean you would be wise to do that too. The IRS has the big guns, you have the pea shooter.
- Personal Bank Statements and Canceled Checks
Records Retention – Hold Onto These Documents For Three (3) Years:
- Correspondence (General)
- Employee Personal Records – AFTER TERMINATION (Best Records Retention Policy on employee records is to keep them until you are dead).
- Employment Applications (. . . . See above for “Best Records Retention Policy“)
- Insurance Policies (Expired)
- Petty Cash Vouchers
Records Retention – After One (1) Year Let Go of These Documents Too:
- Bank Reconciliations
- Correspondence (Routine Only) With Customers and Vendors (Unless you have any ongoing disputes)
- Duplicate Deposit Slips
- Purchase Orders, Receiving Sheets, Requisitions
- These records retention periods are purely recommended Guidelines ONLY. You, however, must use your own good judgment. If you have ANY doubts, save the records and speak to your tax advisor — FIRST.
Disposal of any records are best left to shredding devises or burning – especially any sensitive financial and personal information. Identity theft is common with information left in dumpsters and trash bins. There are no substitutes for good, old-fashioned common-sense practices.
Get yourself a good cross-cut shredder that cuts up paper into small pieces – not the kind that cuts your documents into strips so they can be taped together later and used against you. If Identity theft were legitimate it would be a Fortune 500 Company. Did you know that people actually hire other people to go through garbage cans and look for these kinds of things? That really does happen and that sucks is bad!
One Last Thing Before You Go. . . Make sure you keep your records retention system simple enough so that at some point down the road (when you need it RIGHT NOW), you aren’t looking for your payroll under your ‘vendors’!
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