When to dispose of important records
January 1, 2017
By Douglas D. Funke, CPA
Are you ready to un-clutter your home or work office? Are you ready to breathe again in your pile of papers? As the world moves toward a paperless society, many people are looking to dispose of the business and personal records no longer needed. Of course, before any paperwork is discarded, you should know how long you need to keep certain documents. Below is a commonly agreed upon disposition schedule that you may want to adopt to help reduce your paper storage burden.
Your company’s annual financial reports, underlying schedules, workpapers, items of major, legal and important matters, malpractice insurance policies, insurance records, current claims, reports and related matters should be kept permanently. Day sheets, client billing, other original entry forms, internal year-end financial and management reports, third-party insurance claims, records and correspondence (if not on your computer), and purchase invoices and paid bills should be kept for seven years. Internal monthly summaries, management reports, interim financial reports, expired insurance policies (except malpractice), and all other general business correspondence should be kept for three years. Routine business correspondence of little importance can be discarded after one year.
Canceled checks for major items including taxes, major asset purchases, real estate improvements, and special contracts (to be filed with papers for the underlying transaction) should be kept permanently. Deposit slips, monthly bank statements and canceled checks except as listed previously should be kept for seven years.
Payroll records and summaries, including payroll tax forms and employee time sheets and/or time clock records, should be saved for seven years. Applications (except of employees actually hired) and personnel records (including original applications) after termination can be discarded after three years.
Tax returns and any documents relating to tax audits and adjustments should be saved permanently. Worksheets, lists, schedules, supporting tax return items and general tax records should be saved for seven years. Keep documents, receipts and worksheets as to property (real estate, stocks, bonds, tax shelters, etc.) no longer owned until the property is disposed of plus seven years.
Deeds, mortgages, bills of sale of major items, originally promissory notes which you have paid off unless returned and marked “paid” should be saved permanently. Canceled stock and bond certificates should be saved for seven years. Partnership agreements and corporate employment shareholder agreements should be kept until permanently expired plus seven years. Keep corporate minute books, charter, bylaws and minutes until you cease being a shareholder plus seven years. Promissory notes receivable and other documents of debt owing to you should be kept until fully paid plus seven years. Copies of promissory notes payable, payment schedules and records of debts you owe (after full payment) can be discarded after three years.
One last important note. When the document can be discarded, this means shredded beyond recognition. To avoid identity theft or fraud, keep information security at the top of the mind. For the permanently-kept documents or until the documents can be destroyed, keep them in a secure location, which is known only to the most trusted advisors and partners. When they can be shredded according to this timeline, enjoy the additional space and freedom!