A common concern for businesses is determining how long to retain client files and other important documents and records. This is important for risk management and protecting you and your business if there are any requests for information from tax or legal agencies. Retention policies for documents are nebulous. Failure to keep appropriate records could lead to litigation. Properly maintaining your records means categorizing them and determining the best guidelines for creating a document retention policy (DRP).

A General Guideline

There are different requirements for document retention depending on the federal agency and depend on your specific business needs and the industry you operate in. For tax documents, the Internal Revenue System (IRS) has a general rule that any records that show proof of income, credit, or deduction that you input to your tax return should be kept until its period of limitations ends. For non-tax documents, a commonly used rule among professionals is keeping records for at least seven years. This includes business paperwork for accountants, bookkeepers, and attorneys. This amount of time adheres with the timeline for defense against claims and audits.

How Long Do I Retain Specific Business Documents?

Some documents are less important and only need to be kept for a year, while others should be maintained indefinitely. Though there are no guaranteed limits on any documents, there are some guidelines you can follow when creating a document retention policy.

  • Legal Documents and Property RecordsRecords that show business formation, patents, trademark registrations, annual meeting minutes, property deeds, property appraisals, and other ownership records should be kept forever.
  • Business Federal Tax ReturnsThe IRS states that depending on the document, records should be kept for three to seven years. In case of records showing proof of income or deduction shown on a tax return, keep it until the period of limitations ends, which is about six years if the IRS suspects substantial errors in tax filing. To be safe, preserve these records for seven years. If no returns are filed, keep records permanently.
  • Payroll Tax RecordsThese records include wages, pension payments, timesheets, tax deposits, and benefits. These should be kept for four years from the date those taxes were due or the date you filed them, whichever was later.
  • Current Employee FilesThese documents should be kept for at least seven years after an employee leaves a job. If that employee filed a workers’ compensation or other claims against the business, keep the records for at least ten years after the case is resolved.
  • Accounting RecordsThese documents, including year-end financial records, profit and loss accounts, ledgers, audit reports, and check registers, should be kept for at least seven years or indefinitely.
  • Licensing, Insurance, and Permit RecordsKeep your current documents for any permit, license, or insurance policy indefinitely until you receive an up-to-date replacement for expired documents.
  • Bank StatementsThis includes business banking statements, cash receipts, canceled checks, investment reports, credit card statements, and checkbook stubs. Depending on the needs of your business, keep these for at least seven years or longer.
  • Applicant and Hiring DocumentsKeep applications and resumes for a year to three years, even if you didn’t hire the person who applied.

For documents that don’t fit into these categories, it can be helpful to see if the records are needed by a certain federal agency and check their retention requirements. Otherwise, speak to a CPA or tax attorney.

Creating Your Document Retention Policy

It’s important when determining a document retention policy to use these as guidelines, not a rule. Discuss with your tax attorney or account what retention amount is best for your situation and your business’s industry. It’s helpful to organize your documents both physical and digital in accordance with your DRP so that plans for retaining and discarding documents are easy to understand.

FAQs

Q: How Long Do You Have to Keep Files After Closing a Business?

A: The IRS recommends keeping records for many years after closing your business, particularly documents vital to your company. If you don’t file a return with the IRS, you should keep records indefinitely. The Small Business Administration (SBA) recommends a minimum of seven years for important documents and records.

Q: How Long Should an Attorney Keep Client Files in California?

A: Depending on the type of case, client files should be kept for 5-10 years. For civil cases, important papers or property should be kept for a minimum of five years after closing the case, according to the California Rule of Professional Conduct. It’s wise to keep files for closer to ten years, and some files should be retained for even longer.

Q: Does an Attorney Need to Give Me My File in California?

A: The Code of Professional Conduct requires that attorneys return all papers and properties to which clients are entitled. If the attorney’s fees are all paid, the attorney must hand over requested files, and can’t charge a client for copies made. The original contents of the file belong to the client, so any items you request should be given to you.

Q: Can an Attorney Drop a Client in California?

A: If an attorney drops a client, there must be a reason, such as a client undertaking litigation without probable cause and for the purpose of harassment, or the attorney believing their own mental or physical state makes them unable to represent the client effectively. An attorney must take steps to ensure that termination isn’t harming the client’s rights, which includes giving the client sufficient notice so they can find other counsel.

Q: What Is Usually Part of a Client File?

A: A client file generally contains copies of all client correspondence, litigation materials, pleadings, emails, photographs, texts, and any other relevant external correspondence or client- or case-specific information. However, each firm will apply different parameters and procedures to their client files, so what is in the client file requested will vary.

Ensuring Correct Record Retention for Your Business

If you’re in need of legal help as you determine your DRP, the experienced attorneys at Fishman, Larsen & Callister can help answer your questions. Records are essential in establishing a defense for litigation, claims, and audits, so this isn’t something your business should take lightly. Contact our firm today for counsel.