Records Management: How Long Should We Retain Records?

Often leading up to spring cleaning, I will get a number of inquiries regarding, “How long should we retain records?”  It’s a good question without an easy answer.  In fact, the answer depends on whom you ask and what record or records you are concerned about.

Retention time periods can range from “purge immediately” to “keep forever.”  The IRS advises us to keep our records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.  This period of limitations is simply the period of time after the return is filed that you can amend your tax return or the IRS can assess additional tax.  See, IRS guidelines on tax information.  Some would argue that these records should be kept permanently (at least 7 years).

Which Records and For How long?

From a legal or tax perspective, your records can help you or hurt you, therefore, every business must develop a records retention policy that serves their needs.  Some general thoughts on different kinds of business records follow.  We recommend you discuss any records retention policy with counsel before execution of the policy.  Below is a partial list that is to be used for informational purposes only:

  1. Key Business Documents- Journal entries; financial statements, check registers; P&L statements should be kept permanently. Documents such as annual reports, articles of incorporation, by-laws, amendments, board meeting minutes and other business documents should also be retained permanently. AP/AR books, canceled checks, invoices/expense reports should be retained for at least 7 years unless they support tax return filings.  In which case, follow IRS guidelines.
  2. Banking and Credit Statements-Unless dictated by tax or other business issue—7 years.
  3. Business Asset Records- For disposed property, the IRS recommends retaining until the period of limitations ends after the year of the disposal.  Original deeds and titles should be kept until disposed of.
  4. Human Resources Files- Files related to current employees should be retained while they work for you and 7 years following departure, termination, retirement or other.  For applicants not hired—3 years.    Any pension payment, employee benefit or profit sharing plan documents should be kept permanently.
  5. Employment Tax Records- Minimum 4 years after the taxes were due or paid, whichever is later.  Include employer ID, amounts and dates of wage, pension or annuity payments and tax deposits, the names, addresses, social security numbers, dates of employment and occupation and any records of allocated tips and/or fringe benefits.
  6. Insurance Records- Any policy containing third-party liability coverage should be kept permanently.  First party policies (property, inland marine, data processing, etc) should be kept 4-7 years beyond their expiration date or the date when all claims have been satisfactorily settled.   Any claim information involving third-party liability, Directors & Officers liability, fiduciary liability, employment practices liability, cybersecurity liability, professional or pollution liability should be retained permanently.  For workplace injuries: at least 7 years following final resolution or 10 years after which any workers compensation benefits were distributed.  Any employment practices related claims (wrongful termination, discrimination, etc) and records there from—4 years following conclusion/resolution.

If you need help determining how long you should keep a particular “insurance-related” document, let us know and we can help.  Please note that this is not legal advice and Parker, Smith & Feek is not liable for any oversight, omission or legal action resulting from the use of this information.  We strongly recommend you seek legal counsel review of any corporate policies put in place pertaining to this issue.

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