NEWS AND RESOURCES

Financial Planning for December 2001

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Are You Running Out of Room?
Thanksgiving is past and Christmas is in the air. Chestnuts are roasting on open fires somewhere in the known world and Santa is making out his final list for the big day.

But Santa isn’t the only one making lists this month. Among the many gift lists and Christmas card lists you may be checking off this month, don’t forget the one list that sometimes seems to grow without us really being aware – the list of “stuff” that you should get rid of. You know, those pesky bank statements, tax returns, payroll records, corporate minutes and other business documents that are gathering dust in the back half of the warehouse or garage.

And don’t think this is just a discussion for the office. Have you ever cleaned out your 97-year-old grandfather’s personal effects and found checks dating back to World War I and his Army discharge papers? Don’t laugh – it happens.

Some folks just like to keep all their historical documents, regardless of cost. The rest of us would rather toss everything, but don’t quite know what to get rid of. No doubt as soon as we get rid of that 1977 general ledger, we will need it for something!

To help those of you who want to get rid of the paperwork, we’ve taken our queue this month from Santa and prepared a list. We’ve prepared a record retention guideline list to help you determine what you should keep and what you should send to the dumpster.

There are a few things you should know. First, the list is broad and not intended as a substitute for guidelines tailored to your specific needs such as state requirements in your industry.

Second, in establishing a record retention policy the most important thing is to adhere to whatever policy you establish. Let’s illustrate how bad NOT adhering to the policy could be.

Suppose Spendit Client uses Savem CPAs for income tax preparation. It has always been the policy of Savem to keep every scrap of paper ever collected from its clients, including Spendit. Unfortunately, in preparing the income tax return for 2000, Savem made a mistake that cost Spendit $1/2 million in penalties and interest. Spendit, of course, fires Savem.

It’s a year later and Spendit has decided to sue Savem. Discovery time rolls around and the files to prove Savem’s negligence, or lack thereof, have been destroyed pursuant to a new policy of destroying lost client files. Even worse, not all lost client files have been destroyed yet. What do you think will be the first thought in a juror’s mind when Savem says the file contained information to prove they did all they should do, but the file was destroyed?

Ok, with these caveats, here is a laundry list of records and retention guidelines. As we’ve mentioned, it’s not all-inclusive, but it will give you some good general guidance of where you should go in your year-end house cleaning efforts.

Records Retained Indefinitely


  • Income tax returns, payroll tax returns, sales & use tax returns and
    the checks used to pay the taxes

  • Information returns related to employee benefit plans

  • Audit reports

  • Contracts and leases currently in effect

  • Corporate Stock records, including dividend records

  • Minutes of stockholders, board of directors and committees thereof

  • General ledgers and trial balances

  • Year-end financial statements

  • Pension records

  • Patent and trademark records

  • Year-end general ledger journal entries

  • Property records for all owned property including any title papers, deeds,
    depreciation records, appraisals, blueprints, plans and specifications

  • Articles of Incorporation, Articles of Organization for LLCs, Partnership
    Agreements

  • Union (Labor) contracts

  • Estate and gift tax returns

  • Records and valuations of inherited property



Records Retained Ten Years


  • Check registers

  • Personal property and real estate tax returns

  • Expired franchise agreements

  • Worker Compensation Reports



Records Retained Seven Years


  • Accident Reports

  • Paid notes payable

  • Bank statements

  • Cancelled checks (significant checks such as checks paying taxes should
    be kept indefinitely)

  • Correspondence

  • Property damage reports

  • Depreciation schedules

  • Expired contracts

  • Purchase and expense invoices

  • Sales invoices, shipping documentation or other proof of delivery

  • Employment applications and contracts (terminated employees)

  • Inventory records

  • Records supporting uncollectible accounts receivable

  • Maintenance and repair records on retired assets

  • Property records on retired assets

  • Paychecks and personnel files

  • Daily time sheets or time cards

  • Expense and travel records

  • Bank statements and deposit slips




Records Retained Three Years


  • Insurance policies (after expiration)

  • Petty cash vouchers

  • Purchase order copies

  • Receiving records

  • Interim financial statements

  • W-2s

  • Forms 1099

  • Forms 1098

  • Substantiation for all deducted expenses not covered elsewhere



The time you should start running the record retention clock is the day you file your income tax return for the affected year. For example, if an invoice for the year 2000 should be kept for seven years and the return was filed on April 15, 2001, then the invoice should be destroyed after April 15, 2008.

Since the preceding guidelines are general in nature, any specific concerns you may have should be addressed to your attorney or certified public accountant. We are well acquainted with a good accounting firm to which we can refer you – us.

All kidding aside, devising and implementing a solid record retention policy can reap many benefits. We’ve touched on the legal benefits, but cost considerations are often the more important. Physical data requires physical storage room. This can become quite expensive and a cost that you don’t need to incur. Standardizing your policies can also reduce the amount of management time spent on deciding what to keep and what to throw away. If you have any questions, please give us a call so we can help you make the right decisions for your business.

Have a great holiday season!

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