PICPA - Record Retention: How Long and Where?

Record Retention: How Long and Where?

By Amy L. Leibenguth, CPA

The biggest question concerning company and personal records is how long do they have to be kept? Followed by, where do I keep them? Clients will sometimes turn to their CPAs for advice on what to do. This is a situation where it is best to offer clients guidance, and not a policy.

Record retention is not easily defined, nor is it set in stone. Many circumstances affect what needs to be maintained, for how long, and what can be tossed. Circumstances that can affect the guidelines include individual versus business, private or public, and the activity related to the retention policy. There is a mass of information available to guide a company or an individual in developing their own record retention policy, for both IRS and personal requirements.

Companies and individuals should maintain important documentation in the event that they are audited, are asked for proof related to various types of policies, or are applying for a loan. Records can be maintained in hard copy or electronically. Larger companies are turning to programs where they maintain the documentation electronically and can therefore easily retrieve documents at the push of a button. While this may be cost-prohibitive for a small business, there are options available to make things easier and less burdensome than boxes piled up in a room. Individuals and small businesses may want to purchase a low-cost scanner for maintaining documents electronically.

Clients need to be aware of the existing guidelines for the various types of activities in which they are involved. Guidelines for tax return related documentation can be obtained at the IRS website. Again, the IRS only provides guidelines, and these are not hard rules. Retention periods can range anywhere from six months of time to permanently. Items recommended for permanent maintenance include records related to the original cost of items purchased, research and development records, and IRS approval letters.

The guidance for company record retention also has a wide range, from six months to permanently. Guidance can be found with a simple Web search. There are many outlets of guidance, as well as support for the reasons some companies choose different periods for similar records. Documents related to a company’s stock records, articles of incorporation, bylaws, board of director minutes, and merger activities should be permanently maintained.

Regardless of the type of information, it is important to choose an appropriate storage site. Many permanent records are best maintained in a fire-proof safe or bank deposit box. Items such as back-up server tapes should be maintained offsite from a business. Some documents are also best kept with an attorney or other trusted advisor where they can easily be retrieved, if needed. The storage site is just as important as developing retention guidelines.

Record retention is often something companies put on the bottom of to-do lists. However, developing a policy is important for clients. They do not want to suddenly realize they do not have what they need at a critical moment. Advise them to take an hour or two to do some research and set guidelines for important documents.  Sample firm and client retention schedules are found in PICPA's resources section

Amy L. Leibenguth, CPA, is manager of small business services for ParenteBeard LLC in Allentown. She can be reached at amy.leibenguth@parentebeard.com.

LAST UPDATED 3/24/2011