Page 17 - BusinessWest June 13, 2022

How Long Should You Keep Records?
There Is No One-size-fits-all Answer to This Important Question
By Deb Kaylor
It’s that time of year again! Tax filing sea- son has come to a close, and business tax returns have been filed. For many busi-
nesses, this is also a time to purge old files and business tax records.
While it may be tempting to simply throw away old records and business documents, it’s important to be mindful of the different laws and
legal obligation to keep records at all. However, even in these situations, it’s often
best to err on the side of caution and retain documents and keep business tax records for
a longer period of time. By taking the time to understand the different laws and regulations surrounding document retention and business tax records, businesses can ensure that they are
statute of limitations expires. For most taxpay- ers, this means keeping records for at least three years. However, there are some situations where you should keep records for longer. For example, if you file a claim for a loss carryback, you’ll need to have records from the previous year on hand.
The same is true if you’re self-employed or have income from rental properties; in these cases, you should keep records for at least seven years. If you record depreciation expense on capital assets, invoices and any other purchase agreements should be maintained for at least seven years after that asset is sold. No limit exists if you failed to file or filed a fraudulent return. As such, it is wise to keep business tax records for at least seven years after a return is filed. Ultimately, it’s up to you to decide how long to keep tax records, but it’s always better to err on the side of caution.
Accounting Systems
Audit reports and financial statements from accountants, trial balances, general ledgers, bank statements, journal entries, cash books, charts of accounts, check registers, subsidiary ledgers, and investment sales and purchases should be kept permanently. Other records, such as payable and receivable ledgers, bank reconciliations, bank
“By taking the time to under- stand the different laws and regulations surrounding docu- ment retention and business tax records, businesses can
ensure that they are in compliance with all appli- cable laws and minimize the risk of liability.”
in compliance with all applicable laws and minimize the risk of liability. Here are some things to keep in mind when asking how long to keep business records.
Tax Records
While it may be tempting to clear out the clutter and shred old busi- ness tax records, tax returns and busi- ness documents, it’s important to know what to keep and for how long. Although actual tax returns should be kept permanently (including canceled checks from tax payments), the sup- porting documentation from previous years should be kept until the chance
regulations surrounding document retention. Depending on the type of business, there may be certain records that must be kept for a minimum number of years. In other cases, there may be no
of an audit passes.
Generally speaking, you should keep any tax
return and supporting documentation until the
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