Document management can be overwhelming. What needs to be kept and for how long can be confusing. And you don’t want to store documents for longer than you need to. Especially for hard copy records, that wasted space can be expensive. A records retention schedule can be a very helpful tool in making sure you have what you need. It also helps make sure you don’t hang on to what you don’t need for longer than you should. Here’s a quick look at what such a schedule could help you manage.
Document Retention Basics
Document retention is important for businesses to maintain accurate records. This can include everything from project files to human resources information to financial information. Having access to information when and where you need it can mean the difference between a successful bid for a new project or the loss of a lawsuit. Audits, for example, can lead to expensive fines. Without the right supporting documentation on hand, you’re at risk. In general, the IRS recommends retaining documents for 3 years to avoid supporting documents to be missing or outdated and burdensome.
Financial Records and HR Documents
It is recommended by the IRS that businesses keep supportive financial records relative to income or deductions until the period of limitations expires for a specific tax return. This can be up to 6 years after filing for your tax return, as that is the amount of time within which the IRS can audit you if the filing is greater than 25% f your business’ gross income. In some cases, it is even recommended that you maintain your supportive documents for 7 years if you filed for a deduction for a bad debt or worthless security.
Some non-tax specific financial documents should be kept permanently. This can include journal entries, profit and loss statements, check registers and general business ledgers. Similarly, major business documents such as annual reports, corporate by-laws and amendments, and business formation documents should be kept permanently.
It is suggested that you maintain all employment tax records for at least 4 years after the date taxes were due or paid. Employment tax records include information like employer identification number, amounts and dates of wages paid, annuity and pension payments and tax deposits. Also included are names, addresses, social security numbers, dates of employment and occupations of employees and records of allocated tips and fringe benefits. These are good to hang on to for your HR records permanently.
Project Material
Important project-generated documents have less specific timelines for retention. Depending on the nature of the project and your client, you may want to keep certain records indefinitely. At the very least a digital copy of such material can provide the resources you need to avoid duplication. Certain contracts require businesses to keep project material on file (either in hard copy or in digital form for a certain period of time simply because the client would like to maintain access to the records as well.
That amount of paper work can quickly add up over time, particularly for businesses. Hard copies require special handling, storage, and security. Electronic files take up less physical space and therefore cost less to store. That said, they can be at risk of access by hackers without physical access to the material. Therefore, maintaining your documentation requires thoughtful storage, and prioritization of what needs to be kept. Remember, your organization should not keep personally identifiable information any longer than needed. Because in the event of a security breach (physical or digital), you are liable.
For more advice on managing your business records, connect with the team at Happy Faces Records Management today.
