You know you should shred documents, but which ones? And how long should you keep them? Retention guidelines from state and federal governments can help you answer those questions.
To shred or not to shred? That is the question. Federal document retention guidelines make the answer clear. Sort of. The most prominent difficulty in keeping up with what to keep and what to get rid of is the sheer amount of different regulations.
For instance, the IRS explicitly states that you should keep tax returns for three years. Easy enough, until you read a bit further into the regulations where they suggest keeping "records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction."
And if you run a nonprofit business, the National Council of Nonprofits recommends keeping tax returns, financial statements, and checks "permanently."
Shred-it, a business document shredding company, lists approximately 60 different types of documents and how long you should keep each one. Those numbers range from seven years for purchase orders to four years for freight bills to permanently keeping other records.
Document Retention Guidelines
know when to hold 'em, know when to shred 'em
For a small business, document organization can take a lot of space and time. Keeping a ready checklist of retention guidelines makes the task easier and more efficient. The U.S. Small Business Administration (SBA), the U.S. Department of Labor (DOL), and the IRS are three excellent sources for information regarding record keeping.
1. Organization is key
Whether you prefer a paper file folder, an Excel spreadsheet, or cloud software, organization is your key to record keeping. Even taking a few extra minutes each day to properly file paperwork will make you a happy business owner when it comes time to file your taxes.
2. Keep the right employee records
While there are variances for different records, some retention guidelines are 100% clear. For instance, the DOL expects you to keep "for at least three years payroll records, collective bargaining agreements, and sales and purchase records." Other labor information such as schedules and time cards need to be kept for two years.
For that matter, employee applications have to remain on file for three years, according to the Better Business Bureau. And if an employee is terminated, their personnel file needs to remain on file for seven years.
3. Keep the right tax records
This gets a little tricky because there are so many variations including state and local taxes, necessary equipment, and property use. Your best option for tax information is to get in touch with a CPA. With that in mind, however, there are some general guidelines from the IRS.
"You must keep your records that support an item of income, deduction, or credit shown on your tax return until the period of limitations for that tax return runs out."
*Note that some sites, such as the National Council of Nonprofits, suggest keeping tax returns forever. The truth is, they don't take up too much space, and you never know when the information could come in handy.
What to Do When It's Time to Shred Documents
When your documents do reach the end of their life cycle, you have two choices. You can continue to store them, or you can shred them. Some you can throw away, but it's best to destroy anything with personal identification information, specific business records, proprietary information, and other sensitive information.
Hiring a professional shredding company is an effective and secure way to ensure that your documents won't put you at risk for a data breach. Furthermore, since so many records are electronic now, data destruction is even more difficult. Shred-it points out that unless hard drives and USBs are completely physically destroyed, the data on them is still at risk. It's well worth the small expense to keep your business in compliance with privacy regulations.
One other thing worth noting is that it is generally a bad idea to shred any business documents if your business is under any kind of investigation. Not only does it look bad, but in some cases, it may be illegal. Again, your best option if you have any doubts about records is to consult with a lawyer or a CPA.
Another way to take care of your business is by making sure you have the business insurance you need. Contact your local Pekin Insurance agent today to learn more.