While more and more records are being kept electronically (a subject for another day!), most of us are still challenged by the boxes and boxes (or paper sacks?!?) of receipts, bank statements and other papers we keep to do our tax returns each year. Records retention is an especially never-ending problem for small business (all business!?!).
Five categories, based on passage of time, can be a very useful approach to both the storage and retention issues to be faced in dealing with the piles and piles of paper (as I noted, we will discuss electronic storage devices and issues at a later date). Care must be taken in assigning individual items to the categories, but these five categories seem to work well, for most people and organizations:
Category 1: Items to tossed in approximately a month or two.
Category 2: Items to retain through the year until tax returns for the period have been prepared.
Category 3: Items to retain for three or four years after tax returns are filed (including extensions).
Category 4: Items to retain for six or seven years after tax returns are filed.
Category 5: Items to retain "forever" - that is, as long as the business exists or owns certain property.
Each of these categories have criteria that should be used in applying a particular item to that category. To a limited extent, some items may shift from category to category, depending on changes in tax laws, for example. We will look at each of these issues in a future post.
Dr. Bill - I love to share, I hope you do to! ;-)