by Karen Stern
Many small-business owners make important decisions every day that should be properly documented following a specific records retention policy. Without a plan in place, businesses would be left defenseless if the IRS were to come knocking.
It’s imperative to establish a specific, preferably written, records retention policy and to follow it regularly. The process of records retention ensures that records are kept as long as legally and operationally required and that obsolete records are disposed of in a systematic and controlled manner.
Keeping some items and getting rid of others means there is actually no policy. Once the policy is implemented, ensure all employees are familiar with it and regularly maintain files in accordance with the guidelines.
For example, it’s not unusual for a small business to make a loan to one of its shareholders. If the IRS were to question the loan and attempt to reclassify it as a dividend payment, having the loan documented in your minute book could be imperative for a successful defense against the IRS.
Here are general guidelines to use in determining which records to keep and for how long:
• Permanent records: audit reports, annual financial statements, trademark registrations, property records and depreciation schedules.
• Seven years: tax returns, payroll records, accounts payable/receivable schedules and canceled checks.
• Five years: internal audit reports and excise tax computations.
If you are not sure what records to include in your policy, it’s worth the investment to establish a specific records retention policy. To discuss your current policy or for help completing one, reach out to your adviser or contact Natalie Mamrenko (nmamrenko@bswllc.com or 314-983-1315).
Karen Stern, CPA, (kstern@bswllc.com), partner in charge, Brown Smith Wallace Entrepreneurial Services Group, provides tax and accounting services for companies ranging from start-ups to $20 million in revenue.
Submitted 7 years 121 days ago