The 2023 Guide to Business Records Retention Requirements

The IRS is Calling. How Easy Is It to Find the Business Records They’re Asking For?

Paper records can be almost impossible to find. Bulk document scanning makes it easy.

Please be aware that the content provided in this article is for informational purposes only and should not be considered as legal advice. We are not lawyers, and our expertise lies in providing general information about document scanning services for HR records. If you require legal advice or guidance specific to your situation, please consult with a licensed attorney or professional legal services provider.

Running a business involves a lot of paper, from bank statements to personnel records to receipts for tax time. And each of those records must be kept for varying periods. There’s no record retention rule that applies to all of your documents–there are federal and state regulations. 

For some business records, there are no applicable laws, but UPPBRA, the Uniform Preservation of Private Business Records Act, provides guidelines. These say that you can shred or otherwise destroy regular business documents after three years if no state or federal statute requires you to keep them and the document isn’t part of litigation.

These rules and guidelines mean you must develop a document retention policy. This can be difficult to do with paper documents, which can be misfiled or accidentally destroyed. You know, like that receipt for a client dinner in your wallet instead of in the file folder for expenses you hand your accountant at tax time.

Not sure what to keep and for how long? Here’s a complete guide to business records retention, and then we’ll discuss why a document retention policy becomes painless with bulk document scanning. 

Why Keep Records?

Other than legal requirements, there are many good reasons to keep good records.

• They help you monitor the growth and progress of your business
• They help prepare financial statements
• They identify your income sources
• They keep track of your deductible expenses
• They help prepare your tax returns, and support reported items

Federal Laws, Acts, and Agencies

Every state has its own particular requirements, and so do localities, so review those to ensure you’re in legal compliance. If you’re unsure what to keep and what to toss, talk to your accountant, attorney, and the agency that governs record-keeping in your state.

Federal departments and agencies have their own guidelines, and some acts require document retention as well. These include:

• Internal Revenue Service (IRS)
• Federal Insurance Contributions Act (FICA)
• Americans with Disabilities Act (ADA)
• Age Discrimination in Employment Act (ADEA)
• Occupational Safety and Health Act (OSHA)
• Employee Retirement and Income Security Act (ERISA)
• Civil Rights Act of 1964
• Fair Labor Standards Act (FLSA)
• Family and Medical Leave Act (FMLA)
• Equal Employment Opportunity Commission (EEOC)
• Health Insurance Portability and Accountability Act (HIPAA)
• Federal Unemployment Tax Act (FUTA)

Then there are external agency requirements per standards set by the Payment Card Industry Data Security Standards (PCI DSS). Compliance levels depend on company size and the amount of sales. 

PCI DSS are security standards set by credit card companies such as Visa, Mastercard, Discover, and American Express. The rules are meant to help prevent credit card fraud and data theft.

Non-compliance can see you pay fines of $5,000 to $100,000 per month. It’s all about keeping customer data secure, which is quite difficult to guarantee when you use paper records and non-digital credit card processing. 

How Long Should You Keep Each Type of Record?

It would be great if tax records, accounting records, tax returns, and other documents were mandated to be kept for the same period of time. Unfortunately, that’s not the case, which is why you need a document retention policy that complies with each requirement. 

Legal documents

The best practice is to keep any business formation records, deeds, patents, trademark registrations, property appraisals, bills of sale, and other ownership records forever. 

Federal Tax Returns

The IRS says tax returns should be kept for three to seven years, depending on the action, expense, or event recorded on the document. Confusing? Yes. 

1. Keep records for 3 years if #4, #5, and #6 don’t apply to your situation.
2. Keep records for 3 years from whichever date is latest: the date you filed your original return or 2 years from the date tax was paid, that is if you file a claim for a credit or a refund after you’ve filed. 
3. If you file a claim for a loss from worthless securities or have a bad debt reduction, keep records for 7 years.
4. If you don’t report income, you should report, and it is more than 25% of your gross income shown on the return, keep records for 6 years.
5. If you don’t file a return, keep records forever.
6. If you file a fraudulent return, keep those records forever.
7. Employment tax records should be kept for a minimum of 4 years after the tax due date or payment, whichever is later.

You can ask these questions about every record as you decide what to keep or throw away, or you can make it easy on yourself and keep everything for 7 years, but if you keep paper records, be sure to rent additional storage space. 

Personnel Records

Here, you can get the complete scoop on HR records retention. Some records, such as those that relate to exposure to harmful agents, have to be kept for 30 years after the end of employment, and OSHA accident forms have to be kept for five years. 

Payroll Records

The Federal Labor Standards Act requires employers to keep payroll records, depending on what they are. 

• Payroll records, collective bargaining agreements, sales, and purchase records must be kept for at least 3 years. 
• Wage computation records must be kept for 2 years. This includes time cards, piecework tickets, wage rate tables, work and time schedules, and records of wage deductions or additions.

What does “at least” mean? When can you throw these records away? Different states have different requirements. California currently has the longest statute of limitations for employment law claims. Most have a 3-year statute of limitations, but 4 years for breach of contract. Check the laws in your own state before you decide how long to keep these documents.

Accounting records

Federal law mandates keeping all tax-related accounting records for 7 years. This includes depreciation schedules and year-end financial statements. Your accountant may recommend keeping these documents indefinitely.

Add to the “keep permanently” pile:

• Business formation documents, annual meeting minutes, by-laws, stock ledgers, and property deeds.
• Accounting services documents such as financial statements, check registers, profit and loss statements, budgets, general ledgers, cash books, and audit reports.
• Operating records such as bank statements, credit card statements, canceled checks, checkbook stubs, and cash receipts. Talk to your accountant about these–they may agree that 7 years is long enough, but it depends on your business and tax situation. 

All of this adds up to a lot of paper. Lots and lots of paper. Paper everywhere. Paper in your inbox. Paper in boxes. Paper in file cabinets. Paper that can get lost, destroyed, and misfiled. Paper you can’t find when you get a call from your accountant that you’re facing an IRS audit.

The Case for Bulk Document Scanning

It’s a modern, technology-driven business environment. It’s keep up or get passed by. Bulk document scanning is the first important step toward digital transformation and the operational excellence that achieves growth and prosperity. 

• Reduce or eliminate expenses for copying, mailing, shipping, and storing paper documents. Information sharing and collaboration is quick and easy with digital documents.
• Use your space in ways that make you money instead of storing paper. How much is your rent? Now calculate how much space is devoted to file cabinets and storage space for boxes of paper. I’m sure you could come up with a better way to use that space.
• What about security? Unauthorized access to paper documents has caused trouble for many a business. With electronic documents and a good document management system, you’ll be able to limit access to authorized users only.

• Need to find something fast? Good luck with that if you’re using paper. Maybe you’ve seen those stats that say your employees (or you!) spend 50% of their day looking for the documents they need to do their job. Finding digital documents is fast and easy.

• Can’t find that important receipt? That’s a shame, but the IRS isn’t going to take your word for it if you’re audited. If it were scanned as part of a bulk document scanning project, it would be at your fingertips. 

It’s time to contact DocCapture. 

DocCapture creates business efficiency instantly by connecting your business with the best document imaging services in your area. Our network of scanning services providers is equipped with the latest technology for high-volume scanning, which means you get fast turnaround from a secure facility to reduce file storage costs and staff time and emerge triumphant from those mountains of paper.

Contact DocCapture today and wake up tomorrow to a streamlined business. Learn more about how we can help you – get your free quote now.

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