Record Retention for Businesses and Individuals: What You Need to Know

July 29, 2024 by Gordon Advisors

Maintaining accurate business records is crucial for compliance, efficiency, and overall organization. Proper record retention ensures that you or your team can quickly access important documents when needed while adhering to industry regulation and avoiding potential legal issues. This guide provides information on record retention and details which document and records need to be kept and for how long. Essential policies and best practices will be covered, as well as a detailed retention schedule, to help streamline record-keeping processes.

Record Retention Policies

A best practice is to create a record retention policy for yourself and/or your business, which details the procedures for proper records management and disposal. In the record retention policy, define the timeframe for keeping records to meet legal, regulatory, and operational requirements. An established records retention policy helps prevent keeping unnecessary documents or prematurely disposing of important records.

To develop a comprehensive record retention policy, it’s fundamental to know the types of records that are essential for your business, the legal requirements for these records and best practices for storage and destruction. It is advisable to engage legal and compliance experts when developing the records retention policy to gain valuable insights and help mitigate risk. Additionally, conducting a regular review of the records retention policy helps ensure continued compliance with changing regulations.

Business Record Retention Schedule: What You Need to Keep and For How Long

Short-Term Retention (1-3 Years)

One Year

Receiving Sheets

Two Years

Bank Reconciliation

Three Years

Bank Statements
Employee Applications
Insurance Policies (Confirm this with your agent)
Petty Cash Vouchers
Purchase Orders

Medium-Term Retention (4-7 Years)

Four Years

Lease Payment Records
Minor Contracts

Seven Years

Accident Reports/Claims
Accounts Payable
Canceled Checks (Keep indefinitely for real estate purchases)
Deposit Slips
Electronic Payment Record.
Employee Personnel Records
Expense Reports
Insurance Records
Inventory Records (Keep indefinitely for LIFO system inventor)
Invoices to Customers from Vendors
Loan Payment Schedules
Payroll Records
Sales Records
Timecards & Daily Reports

Long-Term Retention (8+ Years)

Eight Years

Accounts Receivable

Permanent Retention

Audit Reports
Benefit Plans
Charts of Accounts
Construction Records
Deeds/Mortgages/Bills of Sale
Depreciation Schedules
Financial Statements
General Ledgers
Income Tax Information
Tax Returns and Supporting Documents
Trial Balances

Individual Record Retention Schedule: What You Need to Know

Individual records retention is related to tax returns and are situation-based. Individuals should keep tax records and documentation for three years, except in the following circumstances:

Filing a claim for credit or refund after a return is filed, keep records for three years from the original return file date, or two years from the date the tax was paid, whichever comes second.
Keep employment tax records for at least four years after the date the tax is paid or due, whichever comes second.
Keep records for seven years if a claim is filed for a loss from bad debt deduction or worthless securities.
Keep income records permanently if a return is not filed.
Keep records permanently if a fraudulent return is filed.

Best Practices for Record Retention

Following are best practices for creating and maintaining an organized and compliant record-retention system:

Create a Unique Retention Schedule: Develop a detailed records retention schedule p tailored to your business and/or industry, taking in to account the applicable regulations and tax requirements.
Use Digital Storage Solutions: Minimize physical storage space, improve accessibility and security.
Conduct Regular Audits and Reviews: Ensure compliance with legal and regulatory requirements.
Stay Informed & Train Employees: Educate yourself and, for businesses, employees on the importance of record retention and strict adherence to the company records retention policy.
Secure Disposal Methods: Protect sensitive information by using, shredding or professional document destruction services.

Final Thoughts

Effective record retention practices are a critical component of risk management. Developing and maintaining document retention policies ensures your business can keep current with changing regulations to maintain compliance.

It’s important to remember that your CPA firm is there to help you. They will be familiar with the most up-to-date regulations and industry-specific documents and will be able to advise you accordingly.