OUR THOUGHTS ON:

Records Retention - How Long is Long Enough?

Tax

By George Adams

Clients often ask how long their companies should retain their accounting and tax records.

Unfortunately, there is no simple and conclusive answer.  Records should be retained for only as long as they serve a useful purpose or until all local requirements are met.  Record retention periods vary among companies.  However, the retention periods should generally correspond with the longest statute of limitations period prevailing in each state for breach of contract, breach of fiduciary duty and professional liability claims.

The federal income tax regulations provide that a taxpayer’s records must be retained “so long as the contents thereof may become material to the administration of any Internal Revenue Service laws”.  Generally, the record retention period begins at the end of the tax year that the document was created, not from the date of the document.  For items supporting tax returns, the retention period begins on the filing date of the return or its due date (including extensions).

Certain company records should be retained permanently.  Such records include incorporation documents, profit-sharing or employee benefit plan documents, S corporation elections, IRS or state tax audit reports, specific tax return elections or changes in accounting methods.  Other records such as annual financial reports, general ledgers and certain personnel files should be retained for differing periods of time.  Personnel files for terminated employees should be retained for seven years, but personnel files for current employees should be maintained permanently while they are active employees.  Other miscellaneous records should generally be retained for periods varying from one to ten years.

Different statutes and regulations across federal, state and local agencies increase the complexities of records retention.  Because statutes of limitations and state and governmental agency requirements vary by jurisdiction, each company should carefully consider its requirements before adopting a records retention policy.

One important consideration is to ensure that record retention guidelines apply to both paper documents as well as electronic files such as scanned copies of documents and Excel and Word files, or other documents contained within a document management system. We recommend that the document retention guidelines for paper, as well as electronic files, are consistently applied across your organization.  As a reminder, any paper documents containing sensitive data (i.e., social security numbers, etc.) should be disposed of appropriately pursuant to the organization's document destruction policy, if one exists.

This table provided as a PDF provides a suggested retention period relative to various types of documents.  While this is not an all-inclusive list, we believe it is comprehensive and addresses many of the documents retained in a company's accounting and administrative departments.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

comments