Document Retention

USING QUICKBOOKS AND KEEPING YOUR RECORDS

You can use QuickBooks, or any accounting software, to record your business and personal transactions, but the IRS will want proof of this data if you’re ever audited. For most of you, this means you have years and years worth of papers in multiple banker’s boxes in your garage.

In this day and age, there’s no reason why anyone couldn’t “Go Green” and store all of these records digitally, right?

The short answer is yes, but there are steps that you must take to make sure that you’re doing it correctly.

See IRS Rev. Proc. 97-22, 1997-13 IRB 10 (page 10) for complete details on how the IRS wants you to keep your electronic documents, but here are the golden nuggets that I used to set up my filing system:

Section 4.01.4 states, “The information maintained in an electronic storage system must provide support for the taxpayer’s books and records (including books and records in an automated data processing system).” It goes on to say that the information must be “crossed-referenced in a manner that provides an audit trail between the general ledger and the source of document(s).”
Section 4.02.1 states, “…any system used to maintain, organize, or coordinate multiple electronic storage systems is treated as an indexing system under this revenue procedure. The requirement to maintain an indexing system will be satisfied if the indexing system is functionally comparable to a reasonable hardcopy filing system.”

In short, whether you continue to store your files in boxes or save them digitally, they need to be indexed so that the ‘hardcopy’ can be cross-referenced with your data source (i.e. QuickBooks data file).

I simply set up a drive with folders the same way that I would set up my filing cabinet. The filing cabinet itself is the business or the year that the records are for. The sub-folders below are like the tabs in the cabinet to divide categories (i.e. banking, assets). The sub-folders below that are to divide those categories more specifically (i.e. A-Z, monthly statements, reconciles). Here’s a quick example, but this will vary significantly from business to business.

2021 BUSINESS TAX RECORDS
- BANKING
  - RECEIPTS
  - STATEMENTS AND RECONCILES
  - BANK CORRESPONDENCE
- ASSETS
  - TRUCK #1
    - FINANCING PAPERWORK
    - DEPRECIATION SCHEDULE
    - TAXES AND REGISTRATION
  - TRUCK #2
    - FINANCING PAPERWORK
    - DEPRECIATION SCHEDULE
    - TAXES AND REGISTRATION
- KEEP A SUB-FOLDER FOR EVERYTHING YOU WOULD HAVE A FILE OF (i.e. INSURANCE, PROPERTY TAX, LEASE INFO, BUDGETS, VENDOR W-9 FORMS, OWNER’S EQUITY, etc.)

WHAT DO I KEEP AND HOW LONG DO I KEEP MY RECORDS?

Keep everything, forever!! OK, maybe not everything, but I would suggest keeping anything that would classify as a transaction or a deduction that was claimed (depreciation, tax credit). For most businesses or for individuals that own businesses, you will want to keep these records for (at least) 7 years. For everyone else, it’s 3 years, but with exceptions. See the links below for more IRS publications about record keeping.

KEEPING BUSINESS RECORDS | HOW LONG TO KEEP IT

RESOURCES