Don’t Throw Them Away Yet! 5 Reasons You Need to Keep Financial Records
Proper record keeping is crucial for businesses. Documents must be carefully categorized and stored so they can be easy to find in a pinch.
Financial records are often the largest files that organizations need to keep but there are other types of documents that they should hold onto as well. This guide will go over five reasons you need to save your financial records.
- Save Financial Records for Taxes
Receipts, payroll, purchases, expenses, invoices, tax returns, bank statements, credit card statements, VAT documents – there are so many different kinds of financial records that need to be kept! Keeping financial records is a huge part of running a business.
How Long Should Financial Records be Kept?
Accountants typically advise businesses to keep records of their bank statements and credit statements for 7 years. If the monthly statements are taking up too much space you can shred them after a year and keep the yearly statement on file in its place.
Private companies must keep accounting records for a minimum of three years and public companies must keep them for six years. If you want to be on the safe side just keep all financial documents for six to seven years.
How do they need to be Kept?
It doesn’t matter if you keep digital or physical documents. If you want to take up less space and keep your important financial records safe, scan a copy of your documents and store them in the cloud.
Physical records should be kept at a registered office, an accounting office or a records management physicality.
Managers would be wise to inspect the financial records and how they are kept to ensure proper storage. Ultimately, management will be questioned if something is off about the records or if they were tossed out too early.
- Save Employee Records to Keep Tabs on Employees
Employers should keep detailed records of their employees. An employee’s record contains lots of personal information. The types of information kept on employees will vary greatly from company to company. There are a few common ones that every business should keep.
Hold on to income tax documents, a pay stub template, payslips and pay details, insurance contributions, the employee’s application, and resume, earning summaries, expense account documents, and overtime pay.
These files are usually stored in the Human resources department and are only authorized by management. Some companies file employee pay in a sperate file to make that information even more private.
Information about an employee’s health and medical benefits are protected under HIPPA laws and will only be made available to staff under compliance of these laws.
- Keep Other Financial Records for Your Accounting
Be sure you are keeping records of your purchases. If you are a manufacturer this includes the cost of raw materials or any parts purchased to make a finished product. Your documents should identify the payee, the amount paid, proof the payment was made, and a description of the item.
Keep all of the following purchase documents:
- Canceled checks
- Tapes from cash registers
You also need to keep track of your companies expenses. Expenses are the costs of operating your business. All supporting documentation should contain the same information as the purchases.
Keep a document of what the purchase was used for as well. Supporting documents may be needed to prove the expenses to be legitimate.
- Keep Records of Travel and Miscellaneous Expenses to Prove Legitimacy
Save any documentation from travel, transportation, entertainment, and gifts. Keeping records of deductions related to travel, gifts, entertainment, or transportation must be able to be proven.
Keep records to verify information about your business’s assets. Assets are anything your business owns such as property, machinery, furniture, vehicles, and equipment. Your records should show the annual depreciation and the gain or loss when your company sells its assets.
Keep the following business asset documents:
- Show when and how you acquired the assets
- The purchase price
- Section 179 deductions taken
- The cost of improvements
- How the asset is used
- Deductions are taken for depreciation or losses
- When and how you disposed of the asset
- The selling price of the asset
- Any expenses incurred during the sale of the asset
Look at your purchase and sales invoices to find this information. Real estate closing documents usually have this information on their statements for a property. Poof of payments or checks can also provide important information.
The Eight Commandments of Record Keeping
- Always keep of documents that support income, deductions, or credit on your tax returns.
- Most supporting documents only need to be kept for a year.
- Keep employment tax records for at least 4 years.
- If you omitted income from your return be sure to keep your records for 6 years in case of an audit.
- If your company deducted bad debt keep your records for 7 years
- ALWAYS have backups of your documents.
- Expenses less than $75do not require a receipt but you will need to be able to tell the IRS where you bought the items and what it was for.
- Always keep documents you are unsure of keeping. Even if you don’t need them for your taxes they could come in handy for other things.
- Keep Insurance Records in Case You Need to File a Claim
Don’t throw out your insurance documents either. Some insurance documents will be needed to file your taxes but is a good idea to hold onto your insurance paperwork.
Property policies will cover your business in case of an emergency and you may need to refer back to your policy after an accident.
Claims made policies cover claims that are made while the policy is active. These can be quite handy to keep in case you need to build a per trail.
Worker’s compensation claims should be kept. Sometime’s worker’s file claims long after working for a company. Some illnesses take a while for the symptoms to turn into a serious problem, so make sure you hand onto these records for a long time.
Keep it if You are Unsure
We leave you with the best financial records keeping advice. If you are unsure about something keep it.
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