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What Every Small Business Owner Should Know About Record Retention

If you are like most small business owners, understanding which records to keep and which are okay to throw out with regards to your business records can be challenging. Business record retention is important for several reasons including: future business sale, succession planning and for potential tax audits. While you can never predict future events, it is certainly best to be prepared. Even if you have a bookkeeper or CPA for your business, it is still important and recommended to keep copies or originals of your business records in a separate location.

When in doubt, it is always best to keep documents rather than to dispose of them. However, there are minimum requirements of business record retention that are recommended for business owners to keep in the event of a tax audit.

Here are the IRS suggestions regarding which records to keep and for which length of time:

Permanently

There are certain business documents that you should retain permanently, including:

? Audit reports
? Stocks and bonds records
? Deeds, mortgages, bills of sale, leases and contracts currently in effect
? Year-end financial statements
? General and private ledgers
? Minute books including charts and by-laws
? Property appraisals
? Property records
? Trademark registration
? Tax returns including all worksheets

Six to Seven Years

? Accident reports and claims
? Accounts payable records
? Accounts receivable records
? Cancelled checks
? Contracts and leases that have expired
? Inventory lists
? Invoices from vendors
? Payroll summaries
? Employee personnel records
? Retirement plan accounting records, returns and reports
? Sale records

Two to Three Years

? Employment applications
? Personal records for employees who have been terminated
? Unemployment records for past employees
? General communication- internal and external
? Expired insurance policies
? Internal audit reports
? Petty cash vouchers

One Year

? Bank statements
? Loan documents
? Credit card statements
? Correspondence
? Deposit slips
? Purchase orders
? Receiving sheets
? Requisitions

Once you have determined which documents to keep, you will need to develop a system to help you organize them all. For all business documents such as minute books, stock ledgers and other permanent documents, it is often recommended to keep these items at a location that is separate from your business. For example, you may decide to keep these important documents in a bank lock box or safety deposit box.

With regards to all of your other business documents, the first step to take with regards to retention is to communicate with anyone on your team about which items are crucial to keep and where you will want them kept. Labelling, separating and then devising a place to store them all will be part of your business record retention plan.

This process can be overwhelming if it is not kept current. So, it is best to develop the systems in the early phases of the business and then to merely dedicate maintenance time to keeping everything organized.

Important Note: Once your company has established a record retention policy, it should be strictly enforced. This is necessary in order to negate potential claims that records were destroyed to remove incriminating information from further review. The policy should also provide for appropriate retention periods for records that will likely be needed at a later date. Finally, when a file's number comes up, records should be destroyed (and recycled if possible).

Salim Omar, author of "Straight Talk About Small Business Success In New Jersey" specializes in providing accounting and tax services to small business owners and professional practices in NJ. Salim's articles are featured in various national magazines including Accounting Today, The CPA Journal, Chiropractic Economics, Wealth Manager and The Two River Times. You may request a free copy of Salim's new special report titled "How To Drastically Reduce Your Taxes By As Much As 62% This Year Alone And Put Thousands Back In Your Pocket"

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