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statements, and cash and charge slips, and any other supporting documents should be retained for seven years.
For certain assets (residences, real estate, stocks, etc.), all statements, invoices, and purchase documents that substantiate cost should be kept, typically for seven years after the asset is sold. Depreciation schedules and asset-inventory records should be kept permanently.
Corporate Records
For any small business, it is impor- tant to retain certain corporate records. This ensures that the business is in compliance with annual reports, arti- cles of incorporation, stock ownership
and transfers, bylaws, capital-stock cer- tificates, dividend registers, canceled dividend checks, and business licenses and permits. By keeping these records up to date and in a safe place, the small business can avoid costly penalties or legal action. Additionally, having accu- rate and complete records can help
the small business to keep track of its finances and make informed decisions about its future.
Employee Records
As a small business owner, you
are responsible for keeping accurate records for all of your employees. This includes maintaining accurate records of their hours worked, as well as their
compensation and benefits. Employ- ment tax records should be kept for the duration of each employee’s tenure with your company.
In the event that an employee is ter- minated, their records should be kept for at least three years. This will ensure that you have all the necessary docu- mentation in the event of a dispute. Furthermore, keeping accurate records will help to protect your business in the event of an audit. The IRS has strict guidelines regarding the retention of employee records, and failure to com- ply can result in significant penalties.
Here is a guideline of the specific types of employment tax records that should be kept:
Keep permanently:
• W-2 forms
• Payroll tax returns and;
• Retirement plan agreements
Keep for 10 Years:
• Workers’ compensation benefits;
• Employee-withholding-exemption
certificates; and
• Payroll tax records
Keep for seven years:
• Payroll checks;
• Payroll records;
• Time reports;
• Attendance records;
• Medical benefits; and
• Commission reports
Keep for three years:
• Contractor information upon
completion of contract; and • Tip Substantiation
Insurance Policies
Copies of all current insurance poli- cies should be maintained in separate files and kept for 10 years after the poli- cies expire. Insurance claim paperwork should be maintained permanently.
Legal Documents
While some documents should be kept permanently, others can be dis- posed of after a certain amount of time has passed. For example, documents such as bills of sale, permits, licenses, contracts, deeds and titles, mortgages, and stock and bond records should be kept permanently. However, canceled leases and notes receivable can be kept for 10 years after cancellation. In gen- eral, it is important to keep track of any documents that might have legal or financial implications. Consulting with an attorney or accountant can help you to determine which documents need to be kept and for how long.
Storage of Documents
To save time and space, consider an electronic storage system to file your data. The IRS has accepted electronic supporting documentation for sev- eral years. All requirements that apply to hard-copy books and records also apply to electronic storage systems that maintain tax books and records. The electronic storage system must index, store, preserve, retrieve, and reproduce the electronically stored books and records in a legible format. All elec- tronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS.
With the threat of identity theft,
it is also good practice to shred all of the records you no longer need, espe- cially those with personal information. Shredders are an inexpensive means of destroying small amounts of informa- tion. However, a personal shredding service should be considered with a large volume of shredding.
The suggested retention periods shown above are not offered as a final
Records
Continued on page 46
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  18 JUNE 13, 2022
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