The following are the rules, seasoned with a few safeguards and tenderized with some experience modifications!  In other words, if you are still in doubt, DON’T THROW IT OUT until you CALL US!  And, remember, the INITIAL CONSULTATION IS FREE!

Rules for Record Retention

Business Records*

 Accounting Department Guidelines

 AUDITOR’S REPORT and/or AUDITED ANNUAL FINANCIAL STATEMENTS ~ Permanently hold, preferably in bound copy, if available

BANK STATEMENTS and  DEPOSIT SLIPS/RECEIPTS ~ 7 years

CANCELED CHECKS – If available, they follow the same guidelines as the category they are written for.  For example:

     -FIXED ASSETS ~ Permanently

     -GENERAL ~ 7 years

     -PAYROLL ~ 7 years

     -TAXES (payroll related) ~ 7 years

     -TAXES (income) ~ Permanently

CASH DISBURSEMENTS JOURNAL ~ Permanently

CASH RECEIPTS JOURNAL ~ Permanently

CHART OF ACCOUNTS ~ Permanently

CORRESPONDENCE (general) ~ 2 years

CORRESPONDENCE (routine) WITH CUSTOMERS AND/OR VENDORS ~ 2 years

DEEDS, MORTGAGES, BILLS OF SALE ~ Permanently*

ELECTRONIC PAYMENT RECORDS ~ 7 years

EMPLOYEE EXPENSE RECORDS ~ 7 years or 3 years after the Employee leaves employment, whichever is later

FIXED ASSET RECORDS (invoices, canceled checks, depreciation schedules) ~ Permanently

FREIGHT BILLS AND BILLS OF LADING ~ 7 years

GENERAL JOURNAL ~ Permanently

GENERAL LEDGER ~ Permanently

INTERNAL REPORTS (miscellaneous) ~ 3 years

INVENTORY LISTINGS AND TAGS ~ 7 years

INVOICES: SALES TO CUSTOMERS/ CREDIT MEMOS ~ 7 years

NOTES RECEIVABLE LEDGERS AND SCHEDULES ~ 8 years after last activity

NOTES PAYABLE LEDGERS AND SCHEDULES ~ Permanently

PATENT/TRADEMARK AND RELATED PAPERS ~ Permanently

PAYROLL JOURNAL ~ 7 years or 3 years after last date of employment, whichever is later

PETTY CASH VOUCHERS ~ 7 years

PLANT COST VOUCHERS ~ 7 years

PRODUCTION AND SALES REPORTS ~ 7 years

PURCHASES ~ 7 years

PURCHASE JOURNAL ~ Permanently

PURCHASE ORDERS ~ 7 years

RECEIVING SHEETS ~ 1 year

REQUISITIONS ~ 1 year

SALES COMMISSION REPORTS ~ 3 years or 3 years after last date of employment, whichever is later

SALES OR WORK ORDERS ~ 7 years

SCRAP AND SALVAGE RECORDS (inventories, sales, etc.) ~ 7 years

STOCKROOM WITHDRAWAL FORMS ~ 1 year

SUBSIDIARY LEDGERS (accounts receivable, accounts payable, equipment) ~ 7 years

TIME CARDS AND DAILY TIME REPORTS ~ 7 years

TRAINING MANUALS ~ Permanently, even after new manuals are written

TRIAL BALANCE – YEAR END ~ Permanently

VOUCHERS FOR PAYMENTS TO VENDORS, EMPLOYEES, ETC. (includes allowances and reimbursement of employees, officers, etc., for travel and entertainment expenses) ~ 7 years or 3 years after last date of employment, whichever is later for employees.

INSURANCE RECORDS

ACCIDENT REPORTS AND SETTLED CLAIMS ~ 7 years after settlement

FIRE INSPECTION AND SAFETY REPORTS ~ 6 years

INSURANCE POLICIES ~ Permanently

INSURANCE POLICIES (no longer necessary) ~ 7 years

LEGAL DOCUMENTS

ARTICLES OF INCORPORATION AND BYLAWS ~ Permanently even after Articles are amended.

BUY-SELL AGREEMENTS ~ Permanently

CAPITOL STOCK AND BOND RECORDS: LEDGERS, TRANSFER REGISTERS, STUBS SHOWING OPTIONS, ETC. ~ Permanently

CONTRACTS AND LEASES (still in effect) ~ Permanently

CONTRACTS AND LEASES (expired) ~ 7 years

EMPLOYMENT AGREEMENTS ~ 7 years or 3 years after date of last employment, whichever is later.

LEGAL CORRESPONDENCE ~ Permanently

MINUTES ~ Permanently

OPTION RECORDS (expired) ~ 7 years

PARTNERSHIP AGREEMENTS ~ Permanently

PROPERTY APPRAISALS BY OUTSIDE APPRAISERS ~ Permanently

STOCK CERTIFICATES AND LEDGERS ~ Permanently

TAX RECORDS

IRS OR STATE ADJUSTMENTS ~ Permanently

PAYROLL TAX RETURNS ~ 7 years

PROPERTY RECORDS, INCLUDING COSTS, DEPRECIATION RESERVES, YEAR-END TRIAL BALANCES, DEPRECIATION SCHEDULES, BLUEPRINTS AND PLANS ~ Permanently

SALES AND USE TAX RETURNS ~ Permanently

TAX RETURNS AND WORK SHEETS, REVENUE AGENTS’ REPORTS, AND OTHER DOCUMENTS RELATING TO DETERMINATION OF INCOME TAX LIABILITY, CANCELED CHECKS FOR TAX PAYMENTS ~ Permanently

PERSONNEL RECORDS

CHILD LABOR CERTIFICATES AND NOTICES ~ 3 years

EMPLOYMENT APPLICATION ~ 3 years or 3 years from last date of employment, whichever is later.

EMPLOYMENT ELIGIBILITY VERIFICATION (I-9 form and E-Verify printout) (from date of termination) ~ 3 years

GARNISHMENTS ~ 7 years or 3 years from last date of employment, whichever is later.

HELP WANTED ADS AND JOB OPENING NOTICES ~ 2 years

PERSONNEL FILES (from date of termination) ~ 7 years

RECORDS OF JOB INJURIES CAUSING LOSS OF WORK ~ 5 years

SAFETY: CHEMICAL AND TOXIC EXPOSURE RECORDS ~ 30 years

UNION AGREEMENTS AND INDIVIDUAL EMPLOYEE CONTRACTS (from date of termination) ~ 3 years

WITHHOLDING STATEMENTS ~ 7 years

EMPLOYEE BENEFIT PLAN RECORDS

ACTUARIAL REPORTS ~ Permanently

ALLOCATION AND COMPLIANCE TESTING ~ 7 years

BROKERAGE/ TRUSTEE STATEMENTS SUPPORTING INVESTMENTS ~ 7 years

FINANCIAL STATEMENTS ~ Permanently

GENERAL LEDGER AND JOURNALS ~ Permanently

INFORMATION RETURNS (form 5500) ~ Permanently

INTERNAL REVENUE SERVICE/ DEPARTMENT OF LABOR CORRESPONDENCE ~  Permanently

PARTICIPANT COMMUNCIATION RELATED TO DISTRIBUTIONS, TERMINATIONS, BENEFICIARIES ~ 7 years

PLAN AND TRUST AGREEMENTS ~ Permanently

 * These Rules of Record Retention provide general rules for retaining business records, but it should be considered that specific periods for any record retention policy should be carefully researched by management and legal advisors with consideration given to any pending investigations, regulated industry requirements or contract covenants.  In addition to these general rules for record retention, each business should further investigate any industry standards which may affect the period requirements due to the unusual legal circumstances.

For Individuals*

BANK STATEMENTS ~ 3 Years

CANCELED CHECKS ~ 3 Years

CHARITABLE CONTRIBUTIONS ~ Keep with applicable tax return

CREDIT CARD PURCHASE RECEIPTS ~ Keep with Credit Card Statements, if possible. 

CREDIT CARD STATEMENTS ~ 3 Years

EMPLOYEE BUSINESS EXPENSE REPORTS ~ Keep with applicable tax return.

HEALTH INSURANCE POLICIES ~ Permanently (not as a rule but as a safeguard)

HOME AND PROPERTY INSURANCE ~ Permanently (not as a rule but as a safeguard)

INCOME TAX RETURNS ~ Permanently

INVESTMENT SALE & PURCHASE CONFIRMATION RECORDS ~ Discard sale confirmation records when the transactions are correctly reflected on the monthly statement.  Keep purchase confirmation records three to six years after the investment is sold as evidence of cost.

LIFE INSURANCE ~ Keep until there is no chance of reinstatement.  Discard premium receipts when notices reflect payment.

MEDICAL RECORDS ~ Permanently

MEDICAL EXPENSE RECORDS ~ Keep with applicable tax return if deducted.

MILITARY PAPERS ~ Permanently (may be required for possible veterans benefits)

INDIVIDUAL RETIREMENT ACCOUNT RECORDS ~ Permanently

RETIREMENT PLAN STATEMENTS ~ 3 to 6 years.  Keep year-end statements permanently.

PASSPORTS ~ Keep until expiration.

PAY STUBS ~ 1 year

PERSONAL CERTIFICATES (Birth/Death, Marriage/Divorce, Religious ceremonies) ~ Permanently

REAL ESTATE DOCUMENTS ~ Keep 3 to 6 years after property has been disposed of and taxes have been paid.

RESIDENTIAL RECORDS (copies of purchase-related documents, annual mortgage statements, receipts for improvements and copies of rental leases/receipts) ~ Indefinitely

SOCIAL SECURITY STATEMENTS ~ Properly dispose of when current records of payments into the Social Security System are received.

WARRANTIES AND RECEIPTS ~ Discard expired warranties.  Use judgment when discarding receipts.

WILL ~ Keep current Will permanently.  Keep until rendered obsolete (by a new version).

  *These Rules of Record Retention provide general rules for retaining financial records, but careful consideration should be given to any pending investigations or contract covenants.  In addition to these general rules for record retention, each individual should further research any industry standards which may affect the period requirements due to the unusual legal circumstances they may be involved in pertaining to their specific enterprise or interests (i.e., serving on non-profit boards, heading PTA or sport clubs or homeschooling children, etc.)

9.  You’re six months into your business activity and just figured out QuickBooks will figure your sales tax liability for you so it won’t take you three hours to get it done but you have no idea where to start to take advantage of that feature.

8.  You know there’s some way to reconcile your checking account within your accounting software but you have yet to explore that area and are, frankly, too scared of what the result might be.  After all, if you can look at your checking account on-line, who needs QuickBooks to be up-to-date?

7.  At the end of every month, there should be some way to tell if you have made money but, for the life of you, you have yet to figure it out.  The report you pulled says you made more than you have left in the bank and you have no idea why!

6.  You just hired your first employee and have made an agreement with them that they are going to pay their own taxes simply because you don’t have a clue where to start with the whole payroll thing!

5.  You’re married and your spouse is supposed to be keeping track of the books but they won’t just sit down and get it done so you can make better decisions on how to spend your marketing budget based on what is making you money and what isn’t.  This has led to multiple fights in your marriage and you think this ‘owning your own business thing’ maybe just isn’t for you!

4.  You purchased QuickBooks at the beginning of your business and were all gung-ho to get in and make everything organized.  However, the more you tried, the worse you seemed to have made it and now you’re embarrassed to even have a Professional Bookkeeper look at it let alone try to make sense of it all!  You feel like you have to get it in order before you turn it over to someone else and you don’t know where to start so you’re completely stuck!

3.  Every day, you come home after working and meeting with new clients for twelve hours only to have about three hours’ worth of ‘books’ to keep and you’re just too exhausted to even look at them.  Days have stretched to weeks and weeks have stretched to months and now you’re so behind you don’t even know where to start!

2.  You’ve made it to the end of your first year and have bank statements with explanations scrawled on them, an envelope of receipts and a list of about 20 questions to give to your CPA and you’re now dreading HIS bill!

1.  And, the number one result of doing your own books is…………………………………………..you just got hit with a penalty from the state or the IRS for something you don’t even understand and when you talk to them, well, it’s all Greek to you so now you’re up at 2 am reading this list, checking off each result and frantically looking for the spy cam in your home office!

These are just ten of the scenarios entrepreneurs just like you have found after attempting to do their own accounting!  It’s like everything else in a small company, we, as owners, always try to do everything ourselves figuring it’s saving us money because we aren’t having to pay someone else to do it.  In the long run, when it comes to your accounting, you will find that you haven’t saved yourself anything, you’ve cost your company a lot in mistakes, time lost in the field and penalties, late fees or overdrafts that were unnecessary and easily avoidable! 

Let’s face it, we can’t be EVERYTHING to our business.  We can’t be the Marketing Division, IT department, Operations Manager, Bookkeeper, CPA and Chief Cook and Bottle Washer!  At some point, we must give these responsibilities over to people who know what they are doing, can do it all in less than half the time it takes us to get the nerve up to try and can give us the result we are really looking for!  In the long run, the business will run more efficiently and we will have the freedom we need to make decisions that really impact our bottom line.  If you’re looking to do everything yourself to keep your bottom line from shrinking, then your perspective is too narrow and  your vision has lost focus.  The 818 Solution, Inc. was formed just for businesses like yours!  We make it our business to give your business the tools you need to make valuable growth decisions!  We can either train your ‘staff’ to get the most out of your accounting software or handle all of the books for you and give you reports that actually make sense.  If you were able to check off MORE THAN THREE OF THE ABOVE ITEMS as real-life scenarios you have found yourself in, then give us a call and put us to work for you today!

Remember, the number ONE reason marriages fail is poor management of the MONEY!  What do you think the number one reason businesses fail would be? DON’T BE ANOTHER STATISTIC!

While you’re thinking about the IRS, don’t forget the state you live in.  It’s not uncommon to find clients who end up with a large refund from Federal while owing their state quite a bit of cash.  The reasons for this vary and are not the subject of this post.  However, there are some little known credits that exist and I would encourage you to take advantage of them as much as possible.

First, let’s answer the looming question……what is a credit as opposed to a deduction?  If you know, then you can skip this part but for those of us who look at a tax form as if it is written in Greek, let’s keep moving.  Here are the features of a TAX DEDUCTION:

• It is taken only when you are able to ITEMIZE your DEDUCTIONS.  This is determined by the amount of your allowable deductions as opposed to the amount of your standard deduction which is reliant on your Filing Status.  In other words, you would never itemize your deductions if you only have $500 in charitable contributions for the year and no other medical expenses, mileage for work with a personal vehicle, uniforms purchased for your job, etc. because your standard deduction (even if you are single) would be significantly higher than your $500 itemized deduction!  Still Greek?
• It is used only to REDUCE YOUR TAXABLE INCOME before your tax liability is determined.  Now, keep in mind that deductions can only reduce your income to zero, not beyond that!  In other words, you cannot get your income to a negative number using DEDUCTIONS.

The features of a TAX CREDIT are as follows:

• It is taken when you qualify for the credit, regardless of your Filing Status (however the size the allowable amount of the credit can be determined by your Filing Status).
• It is used to REDUCE YOUR TAX LIABILITY and can even reduce it to a negative number!  While that does not necessarily mean you will be getting a refund based on the credit itself, it will at the very least be a credit you can carry forward for up to 5 years from the year you established the credit!

Now that we have the Glossary, let’s move on to the crazy advantage we have as taxpayers in Arizona.  To my knowledge, Arizona,  Florida, Illinois, Iowa, Minnesota, Pennsylvania and Rhode Island are the only states that currently offer this type of TAX CREDIT.  It is called the School Tuition Tax Credit.  That can be a little misleading as only one facet of the credit it attributable to actual TUITION.  That is the Private side of the credit.  Allow me to explain.

Let’s say you want to put your son or daughter into a Private School.  You would normally take a look at your budget and just decide if you can afford to have that type of expense and make the decision from there.  You may go to family members who want to help you and get money from them that assists you to pay that tuition, but, for the most part, you will be on your own.  It can be very expensive, too!  When you compare the cost of a Private School education to the free Public School education, most parents will opt for the Public experience.

Well, in the above mentioned states, particularly in Arizona, there is an option that could allow you to send your son or daughter to a Private school FOR FREE while benefiting everyone involved (including the STATE!).  How?  Through TAX CREDITS!  Here’s how it works:

Your family and friends all have some sort of State tax liability every year, whether they pay it all during the year as it is withheld from their paychecks or they pay it all at once on April 15th or a little of both, they all have some liability of taxes due to the state if they are gainfully employed.  With the tax credit, SINGLE taxpayers can donate up to $500/year to a School Tuition Organization (STO) and then send $500 LESS to the State!  That’s right, it’s as if they sent it directly to the Department of Revenue instead of to the STO!  And the benefit to you and your child?  They get up to 92% of that donation directly paid to their tuition account at the Private School they attend.  Too good to be true?  Well, then consider that a MARRIED COUPLE can donate up to $1000/year to an STO on behalf of your son or daughter!  They can even specify a certain amount per child if they would like to!

Now, consider again that you are looking at the options for educating your child.  That Private School Tuition seems a lot more like reality for your budget through the tax credit program, doesn’t it?  And, for the skeptic, I’ve personally done it (both donated and received donated funds) so if you still think it’s too good to be true, just ask me and I’ll sit with you personally and show you how it works for you!

The questions I’ve always been asked are as follows:

• What if my family can’t give the $500 or $1000 all at once?  They can spread it out throughout the year if they would like.  Just remember that, depending on the STO, this may effect the way it is distributed to your tuition account.  You will still receive all that you are entitled to, but the timing may be somewhat unpredictable.
• What if my friends have never had to pay that much to the State in taxes?  They can still donate up to the allowable amount but they will have credit to run forward for up to 5 years.  They should consult their tax professional or give us a call and we can walk them through the specifics.  Also, just because $500 and $1000 are the allowable limits does not mean that you have to give that much!  You can donate ANY amount!  Remember, every dollar reduces your tuition account by up to $.92!  They all add up!
• Why does the state allow this?  Won’t they eventually go broke if everyone opts to send money to the STO instead of the Department of Revenue?  First, we need to understand that the average cost for tuition for an elementary student in a Private School is about $5500/year.  The cost to the State for the FREE Public School to educate the same child averages out to $7800/year!  In light of that fact, if your friends and family donate up to $59o0 to fully fund your child’s tuition, they are SAVING THE STATE $1900/year for that student.  Now, multiply that by an average class size of 12 students in the Private School and in just your child’s 2nd grade class, the STATE HAS SAVED $22,800 this year in educational costs!
• What if I don’t know anyone who has children in Private School but I want to donate anyway?  Yes, you can give without specifying which student receives the benefit.  The STO will then put the money into a Scholarship fund that is awarded to students of lower income families who cannot find enough donors to fund their tuition.  Also, you can give to an STO and specify the school only.  That school will then put that money into a scholarship fund that will also be awarded to lower income families on their roster.
• What if I also want to donate to the PUBLIC SCHOOL around the corner from my house?  YOU CAN!  The same bill that brings us the opportunity to give to the STO also gives us the ability to give to the PUBLIC SCHOOL as well!  Either you can pay for your child to participate in extra-curricular activities or you can donate for a specific program to keep going so everyone else can enjoy the (for example) drama program!  The limits are different.  Please consult your tax professional or give us a call and we’ll help you determine what to do!

So, if you would like to direct where your tax money is going on the State level, give this some serious thought and then call us and we can walk you through the process!  Oh, and, by the way, the donations all qualify as a TAX DEDUCTION on your FEDERAL TAXES because you are giving to an STO which is a 501(c)3 organization!

Now, GO GIVE!!!!!  Here are a few links:

www.acsto.org

www.acst.org

www.apesf.org

www.astoa.com

And, for the legalese:  http://www.azdor.gov/TaxCredits/SchoolTaxCreditsforIndividuals.aspx#private