How Long Should I Keep My Accounting Records?
Are you ever confused about how long keep financial records before discarding them? It’s a common question that small business have.
Here are some basic guidelines, but keep in mind that the rules around record keeping can differ. In case of doubt, always check with your accountant or attorney. With the ability to scan documents and the small amount of hard drive space that this info takes up, OSYB always advises our clients with this general rule: “save more when you are unsure”.
Here are 5 Tips:
1. Keep organization and files simple
For small businesses there is no need to get fancy with your filing systems. For instance, keeping bookkeeping records in separate folders for each vendor is a simple method. A folder for your bank and credit card statements is also another way to allow you to look things up easily. You can always trace back the dates and payees in your QuickBook’s file to tell you when a given transaction was recorded. The more complex your system is, the easier it is for you to stray from using it.
2. Electronic records are safer than paper
The beauty of electronic records, besides their obvious advantage in terms of space savings is that you can keep backups in multiple locations. Paper is always in one place. With electronic bookkeeping records, make sure to have backups offsite. It is wise to keep records on and off-site in case of a catastrophic event such as loss of your server.
3. The IRS is OK
with electronic records (scans, pdfs, etc)
The days when the IRS wanted every bookkeeping record to be on paper are long gone. As long as you can retrieve documents easily and as long as they are readable, IRS inspectors are fine with electronic records.
4. Seven Year Rule for Record Retention(general rule)
The rules on how long to keep financial records varies depending on what you are saving. For up to date tax filings, 7 years is a safe rule of thumb. Some people might say that is too long, but it is easier to follow this rule than to have to keep track how long you should keep different info. We suggest you keep tax returns for the life of your company. Scan them and save them both on and off site..
5. QuickBooks is your ultimate database
What does the IRS/State auditor review first look at when they come in for an audit? The general ledger is the primary source. The inspector will start asking for supporting documentation based on what they sees in QuickBooks. The cleaner and better categorized your QuickBooks file, the less documentation you will have to provide.
Clients of our bookkeeping service tend to have very organized files (since we maintain the files for them) and we have seen IRS audits of organized files begin and end simply with a review of QuickBooks, without requests for more info. This is not the norm, but does show that organization and accuracy can help greatly.
Begin today, put a simple system in place that works for you.Source: www.osyb.com