March 27, 2017

Do you have a plan for your paperwork?

by: Devin Cunningham

Every January we all make resolutions for the year ahead. A common goal, both professionally and personally, is to get better organized – and a great first step is to create and maintain an effective record retention policy.

The essence of an effective record retention policy is to keep what you need and get rid of the documents that no longer matter. This sounds so simple in theory, but can be difficult without some guidance. This is where we can help!

Some benefits of a well-implemented retention policy include:

  • Reduction in data storage costs by eliminating unnecessary items
  • Mitigating risk in the event of a data breach
  • Reduced litigation or regulatory costs
  • Improve speed/accuracy of record retrieval

Here is our suggested record retention policy for both businesses and individuals:

General Rules of Thumb 

Businesses and individuals should retain copies of filed tax returns indefinitely. These should be kept in a safe place. If you prefer to keep your records electronically we can provide you with a secured pdf copy. However, be sure to back up your computer records effectively if you choose to retain only electronic records. Once you have made the decision to dispose of paper documents, be sure to shred them thoroughly before throwing away. These documents contain a great deal of personal information that you don’t want falling into the wrong hands!

IRS Examinations 

The IRS generally will not audit returns after three years, though there are exceptions that can extend the IRS audit window. We included a link to the IRS webpage concerning record retention.

What about Ohio? Ohio’s statute of limitations is 4 years. this period begins on the date that the Ohio income tax return was due without extensions. The state of Ohio is permitted to examine your tax returns for one year longer than the IRS. We recommend that our Ohio business and individual clients retain all documentation for 4 years in the event of exam. Many states have statutes that differ from the IRS regulations. Be sure to check the rules in your specific state before disposing of any records.

What about Non-Tax Related Business Records?

Certain business documentation should be kept indefinitely. This includes:

  • Articles of Incorporation
  • Legal communications
  • Patents, copyrights, trademarks
  • Audited financial statements and CPA audit reports
  • General ledgers and year-end trial balances

Aside from supportive tax records, other documents such as accounts payable/receivable ledgers, inventory reports, bank statements and reconciliations, invoices and expense reports should be retained for a minimum of 7 years.

Final Thoughts

There IRS will expect you to be able to deliver documents promptly should they ever ask. It is extremely helpful to maintain an efficient record-keeping system, whether you prefer to keep hard copies or electronic records. Please consult your legal team or advisors for the record retention adoption policy that best suits your organization.

Remember, we’re here to be your financial and tax partner year-round, not just at tax time! If you would like to discuss your individual or business situation, please give us a call at 216.524.8900.

Click here to download your copy of our Record Retention sheet for Individuals and Businesses.

Hobe & Lucas Certified Public Accountants, Inc. is a full-service accounting and business consulting firm dedicated to providing clients with exceptional value.

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Investment advisory services are offered through Avantax Planning PartnersSM. Commission-based brokerage services are offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Insurance services offered through licensed agents of Avantax Planning Partners. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. The Avantax entities are independent of and unrelated to Hobe & Lucas Certified Public Accountants, Inc.

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