Record Retention Quick Tips

Businesses and individuals are constantly faced with the question: How long should I keep my records and what records should I keep? For tax purposes, you need to find a middle ground for keeping tax and financial records. Here are some tips to help you figure out which records to keep, how long to keep them, and how to retain them:

What to Keep

A simple rule is to keep track of receipts and deductible expenses. These items will produce good records that will be needed in the preparation of tax returns and financial statements.

Retention Time

Individuals should keep copies of their tax returns and supporting data for three years from the time the return was filed. However in case of an audit, it is wise to keep them 7 years.

Then there are the permanent records that should be kept forever. These documents are typically related to property (real or personal), taxes, contracts, investments, trade confirmations, audit reports, retirement and pension records and important correspondence.

For your convenience, MKS&H has created an easy reference schedule for the most common business documents. To view it, please click here.

Additionally, when your records are no longer needed for tax purposes do not discard them until you check to see if they should be kept longer for other purposes. Your insurance company or creditors may require you to keep certain records longer than the IRS does. Therefore, your financial advisors (accountant, lawyer, and banker) are also a good resource to confirm with about any documents you are contemplating keeping or discarding.

How to Organize & Store

In today’s world there are not just paper records, but also electronic data to retain. You can scan your paper data to make it easier to store, but you should have it organized as to the type of data. For instance label a CD with the year and then add ancillary informational underneath such as tax returns, supporting data, etc.

For businesses and individuals it is highly recommended to invest in an online backup service or a cloud hosting program that will securely store your records remotely. This will ensure your records can be easily accessed and restored if a natural disaster or fire occurs at your office or home.

Furthermore, businesses should have a Record Retention Policy plan in place and documented. The more information a business retains, the greater the burden of identifying and locating records when needed for reference purposes and legal compliance. Without a records management program with indexing capabilities, the effort of locating required documents can be immense. Risk exists if a company is not able to locate all seemingly relevant records and unintentionally withholds required documents. The process of developing a document retention policy involves: (1) Identifying what types of paperwork (and electronic files) your business generates; (2) Determining the appropriate (and legal) length of time to retain them; and (3) Recording those retention times on a written schedule. If you do not have a plan in place, your accountant or lawyer can assist you with developing your policy.

For more information on record retention or how we can assist with your policy plans please contact your MKS&H advisor.

Article contributed by Karen Fischer, MKS&H Small Business Advisor

About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by advising them regarding their financial, technology and human capital management needs.

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