Yesterday’s blog post highlighted tips for personal financial records retention. The record-retention guidelines are slightly different for businesses. Here are the basics to get you started.
Employee records. Keep personnel records for three years after an employee has been terminated. Also maintain records that support employee earnings for at least four years. This timeframe should cover various state and federal requirements. (However, don’t throw away records that might involve unclaimed property, such as a final paycheck not claimed by a former employee.)
Timecards specifically must be kept for at least three years if your business engages in interstate commerce and is subject to the Fair Labor Standards Act. However, it’s a best practice for all businesses to keep the files for several years in case questions arise.
Employment tax records. Keep four years from the date the tax was due or the date it was paid, whichever is longer.
Travel and entertainment records. For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations.
Sales tax returns. State regulations vary. For example, New York generally requires sales tax records to be retained for three years, while California requires four years, and Arkansas, six. Check with your tax advisor.
Business property. Records used to substantiate the cost and deductions (such as depreciation, amortization and depletion) associated with business property must be maintained to determine the basis and gain (or loss) on the sale. Keep these for as long as you own the asset, plus seven years, according to IRS guidelines.
Proper Disposal Protocol
Regardless of whether you’re tossing out personal or business financial documents, always shred them thoroughly first. Also, use proper disposal protocol for any computers and other electronic equipment (such as printers and copiers) that may contain financial data. Simply deleting files using File Manager isn’t enough. Unless you use proper disposal protocol, tech-savvy hackers may be able to recreate sensitive data from the device’s hard drive when it was thrown out, donated to a charity, or returned to the lessor after the lease term expired.
If you have any questions regarding financial records retention, contact your Dalby Wendland tax advisor for more information.