As more companies transition to a hybrid or even fully remote workplace, they’re facing new challenges, opportunities and expectations inherent to these workplace models. Many businesses are downsizing their office spaces and relying on digital and cloud technology. As they do so, they’re realizing they don’t have the space, time or interest in storing and filing every piece of paperwork related to their business. Companies that require extra building space to store documents should consider cutting down on paper documentation to save money or figure out how to use it creatively for their employees. However, there are specific documents that business owners are required to retain, including tax, legal and personnel records. This topic can be confusing and complex, especially as guidelines can vary based on industry, circumstance and state. It’s best to follow guidelines specific to your situation while establishing a document retention policy for all other documents, including ones that don’t fit into the categories mentioned below.
Business document retention general guidelines
While most document retention guidance tends to be more best practice than official, there are some documents that are accompanied by specific document retention guidelines. The U.S. Chamber of Commerce recommends retention policies for the following documents:
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Tax returns: Business tax returns should be kept for three to seven years, depending on your situation. You should retain federal tax returns and payroll tax records for seven years, to be safe. You should also keep IRS adjustments and sales and use tax returns permanently. Additionally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out. The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. Typically, this is three years and no more than seven.
Legal documents: Keep legal documents including bills of sale, business formation records, deeds, patents and trademark registrations, property appraisals and other ownership documents indefinitely.
Accounting records: Retain all accounting records that apply to your taxes, including depreciation schedules and year-end financial statements, for at least seven years or indefinitely.
Personnel records: The document retention guidance for personnel depends on the subject matter. Refer to this chart for more information.
Payroll information: You are required by the FLSA to retain payroll documents for at least three years.
Insurance, permits and licenses: Keep documentation for insurance, permits and licenses until you receive updated policy documents.
Bank statements: Your business banking, credit card and investment statements should be kept for at least seven years.
Hiring and employment records: Retain hiring and other records for at least one year. This includes resumes, applications, job ads and more.
Implementing a document retention policy in your workplace
Whether you’re accustomed to storing your business documents digitally or physically, implementing a document retention policy in your workplace can help you quickly decide which documents to keep and for how long. Identify what types of documents you possess and the level of importance they have for your business. Retaining all critical business documents, including the ones listed above, for the recommended period is the best practice. Decide which other documents are important to keep and for how long. Documents that aren’t as crucial can be stored as digital files to save space.
The process for saving your documentation is also important to determine. You probably receive much of your documentation via email—immediately downloading and saving your digital files in a dedicated place on your computer can help you stay organized and avoid searching your inbox for documents. As recommended by Consumer Reports, digital copies should be stored in a password-protected electronic file, on a password-protected external hard drive or in the cloud (be sure it’s encrypted to protect your data). Important paper records should be stored in a fireproof safe or safety deposit box. Even if you’re more inclined to save paper copies, saving electronic copies can provide the necessary backup.
While there are many varying opinions for document retention policies, it’s best to figure out what works best for your unique situation. Keep official business records for the recommended period, while creating a policy that classifies and specifies retention practices for all other documents. A precise and intentional plan that you and your employees can quickly refer to will help you stay organized, prepared and in compliance.
Dominic Rovano, CPA is a Partner at Janover LLC and leads the firm’s Professional Services Group.