The IRS says you can use any recordkeeping system as long as it “clearly shows your income and expenses”. But unless you’re auditioning to appear on an episode of Hoarders, you should probably go paperless and store everything electronically. You should keep employment tax records for at least four years after the date that payroll taxes become due, or are paid (whichever is later). Accountants typically how long to keep business records will advise businesses to keep their bank account and credit statements for 7 years. However, if your monthly statements aren’t serving any tax or other business purposes, you can consider shredding them after a year and keeping your detailed annual statements on hand for 7 years. For Title VII and ADA, the requirements kick in when you have 15 or more employees; it’s 20 or more employees for ADEA.
- This includes California, which can investigate 12 years of tax history in businesses suspected of fraud.
- After the recommended time for retention has passed, you can manually shred your paperwork or find a local document shredding service that will handle the work for you.
- Understanding and adhering to CRA document retention policies, like how long to keep business records in Canada, is vital for businesses to ensure compliance and maximize efficiency.
- And if you have meals and lodging expenses that you report under an accountable plan for a per-diem allowance, you won’t need to keep your receipts.
If you want to destroy your books of account and records earlier than the retention period specified in How long to keep your records, you first must get written permission from the CRA. If you keep your records on servers located outside Canada, you must access the servers or arrange for your staff to access the servers and provide the electronic system records required by CRA officials. Records of your commercial auto, errors and omissions (E&O), general liability, property coverage, umbrella liability, and medical malpractice (if applicable) insurance should be kept forever. These records can help you defend against claims or suits for compensation that occur long after your business closes. Because asset values can depreciate over time, your records will help an auditor or tax professional calculate the asset’s depreciation, amortization, or depletion deductions. They can also help them assess the gains or losses realized from the sale or disposal of the property.
How Long Should You Keep Your Business Records?
In general, the IRS requires businesses to keep records until the period of limitations, or statute of limitations, runs out. The period of limitations is the amount of time that you have to make changes to your previous tax return or which the IRS can assess more tax. Aside from the IRS requiring you to maintain business records, there’s a business case to do so as well.
One part of being a business owner means keeping records for everything, including what you’ve earned, what you’ve spent and where you’ve traveled. It can become easy to get swamped in paperwork, and you may be tempted to toss your records once your business taxes are filed. With the increasing focus on data security, protection, and privacy, businesses must ensure that their document retention practices comply with privacy laws and protect sensitive information. This is particularly challenging in the era of cyber threats and data breaches. Laws and requirements regarding document retention can change, requiring businesses to continually update their policies and practices. This constant need for adaptation can be resource-intensive and requires ongoing attention.
Keeping Up with Changing Regulations
Sole proprietorships and partnerships without a DBA do not legally have to open a separate account. But again, separating accounts makes keeping business records easier. By separating your funds, you can better track which expenses and income are yours and which are your business’s.
