In the old days, record keeping on behalf of our payroll clients consisted of massive quantities of paper, filed alphabetically by client by year. We would spend the first weekend in February moving files out of current year files and into boxes to be hauled to an attic or basement. In a perfect world, that would be the last time that we would see them for seven years when we pulled them out and spent days shredding and/or burning.
When an employer would ask for their quarterly returns from two years ago – what a disaster! It would take hours and sometimes days to find what they needed. Something had to give…
Enter my IT guy (also my brother)! “We are going paperless,” he said (this was before the days of everything being online). I panicked. He dug in and I am happy to say that for the past three years, cleaning out our year end files was accomplished by several clicks of the mouse and we know (almost) all we have, we know where we have it and here is a reminder of how long you must keep it!
Permanent: Tax returns and major financial records such as payments to the government, legal filings, inheritances, etc.
3 – 7 Years: Supporting Documentation including W-2, 1099’s, bank statements, receipts (in this case we recommend erring on the side of caution and just keep for 7 years after returns are filed).
1 Year: Supporting Receipts, pay stubs – things to verify the accuracy of W-2’s, etc.
As a suggestion on filing procedures, we create a file at the start of each year named 2021. Then everything that happens in 2021 that applies only to 2021 goes into that file. We also create all the subfiles we need to keep it organized. At the start of 2022, we will create a file named 2022 that will house all 2022 records and move 2021 to Archive (which is not online – it is backed up to an external hard drive and we are then not paying for data storage for things that never change). We have two copies – one internal and one off-site.
We also have a file named “Company Info” this is where we file tax returns and major financial records including powers of attorney, etc. This file does not get archived.
Good luck and remember – Records management is knowing what you have, where you have it and how long you must keep it!