Even with QuickBooks around, bookkeepers often wonder how long they should keep old reports, copies of invoices, and other bits of accounting information. There isn't a one-size-fits-all answer to this, but QuickBooks can help you with document retention. However, there are a few things to think about:
Consider whether the other party to a transaction is ever going to want the information. For example, if you're chronically arguing with a vendor about whether you've paid some bill, it makes sense to hang on to those vendor bills and any records of your payment for as long as the argument may go on. This means that any paperwork that documents vendor bills and payments doesn't necessarily have to be retained if you don't have a problem.
Consider tax accounting requirements. By law (a lot of people don't realize this), a business is required to maintain accounting records in order to report its profits, losses, income, and deductions to the Internal Revenue Service. This means that anything that you need to calculate your profits or substantiate elements of your calculations should be maintained. However, a statute of limitations exists that typically runs three years from the date you last filed the return. This means that, in most cases, you don't need to keep paperwork that's any older than three years past the return that it relates to. A word of caution is in order because a couple of exceptions exist to this three-year statute of limitations:
If you've been really sloppy and through your sloppiness omitted gross income in excess of 25 percent of what your return shows, the statute of limitations equals six years.
If no return is filed or a fraudulent return is filed, no statute of limitations exists.
Consider the old records that you may need in the future in order to calculate an item for your tax return. These need to be retained. For example, if you bought a factory 30 years ago, keep those purchase records until after you sell the factory.
Consider that in some industries, other document retention rules or regulations exist. For example, if you're a physician, you keep your old patient records — and this may include patient accounting information — for longer than just three years. These other document retention rules vary by industry. Find out what the rules are for your industry.
You may want to think twice about simply tossing out financial records. You may want to shred them. Some big-box office supply stores offer in-store shredding services for reasonable prices.
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Source:http://www.dummies.com/how-to/content/understanding-document-retention-with-quickbooks-2.html
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