The Ambitious Bookkeeper Podcast

204 ⎸ Q: How long should we retain client documents?

• Serena Shoup, CPA • Episode 204

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In this episode, I'm tackling a listener question about document retention in our digital age. You know how we used to worry about keeping physical files for 3, 5, or 7 years? Well, now that everything's digital and stored in the cloud, does that change our retention strategy? Spoiler alert: it's way more complex than I initially thought! I'm breaking down both IRS guidelines for small businesses AND AICPA guidelines for accounting firms, plus sharing exactly what we do in our own firm.

What You'll Learn:

  • The difference between IRS requirements for small businesses vs. AICPA guidelines for accounting firms
  • How to create your own document retention policy (and why every firm owner needs one)
  • The logistics of offboarding clients while protecting yourself legally
  • What documents you should NEVER delete and what you can purge after 7-10 years

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I am taking a listener question and answering it here in a short and sweet format so you can get a little extra strategy in your earbuds this week. So If you aren't aware, you can submit your question through audio format if you go to speakpipe.com/ambitious bookkeeper, just like our listener here. Now, let's get into today's episode. Hey, I have meaning to try to get into a hot seat to talk about this, but I think it might be a good, podcast episode. Actually, one thing that we really don't all talk about in today's digital world are retention requirements. I know in the past it was always like, don't keep anything past the three year, five year, seven year limit. Because if you get audited, they can ask you for whatever you have. So in today's day and age, when we have digital files going back years and years, does that change anything? Should we be, purging old years from client files? I'm just wondering what everyone else is doing, regarding record retention. Thank you. This message came from one of my active bookkeeping business accelerator students. She mentioned that we have hot seats. So when you are a VIP member of the Bookkeeping Business Accelerator, you get access to. Currently we're doing monthly hot seats and monthly co-working calls. And on the hot seats you can bring questions just like this, and. Brainstorm, get coached back and forth. this question, however, is, at first I was gonna be like, this is a very straightforward question and this is something that you could also bring to one of the live q and as. We also aired those, those here on the podcast and the YouTube channel as well. But as I started diving into what our record retention policy is and. The IRS guidelines for small businesses versus the A-I-C-P-A guidelines for accounting firms. I realized that this is actually very complex and so even though this is a mini episode, I'm gonna try to do my best to simplify things. but what I'm gonna do is actually direct you to do your own research. When you're ever in doubt, don't. Ever rely on podcasts like this even though I love helping you all and helping you find the research? I always think things like this, you need to also do your own research to verify what you're learning. Don't just blindly trust, people like me out on the internet. Go and do your own research. And so I've already mentioned two sources that I've looked at to develop our own internal. Record retention policies, and I encourage you to use those resources as well. Whether or not you are A CPA, I think the A-I-C-P-A guidelines are the best place to start, even as a bookkeeper to make sure you are. CY Aing covering your butt. Okay, so this is what we've actually used inside of our firm, and I've given a template inside of the Bookkeeping and Business Accelerator as a starting point for your own document retention policy. I think every firm owner should have one of these. Even if you are a solo firm owner, just for your own peace of mind and having a piece of paper to look back and say, okay, yes it is time to delete these files, or No, we need to keep these. So first of all, I want to acknowledge that this day and age we have all this cloud storage, all of our clients, if you work virtually, even if you don't, you're probably storing all of these documents on either Google Drive or Google Workspace or Dropbox or OneDrive or some type of cloud storage. And so it feels like. You don't have to purge these files, but I do think You should still. So right now as this podcast episode airs, we are in 2025 and I have been in business for eight years and I. So technically as we start getting into some of the numbers, I'm gonna kind of try to summarize some things. I could be deleting some things from some of my earlier clients from my first year if they're no longer clients, and, maybe that's probably an exercise that I should be doing, but it's on the back burner. So, basically just make sure That you have a policy developed internally and that you're training your team on it. But even so, you are the one that's ultimately responsible as the CEO. Or if you end up, you know, hiring an ops manager, you can make them responsible for keeping track of these kinds of things. but have that internal policy on what to keep, how long to keep it, and all those things.'cause there's lots of different types of documents that we end up. Coming across as bookkeepers. And then there's the piece of it as like what is our responsibility to keep versus what is the client's responsibility to keep? And I'm always of the mind when I disengage. With a client, I am willing to basically give them pretty much everything that we did for them, because most of the time our clients are not downloading the reports that we download from Gusto. They're not downloading the financial statements. They're not really like other than the operating agreement. And sometimes clients don't even have this, but the EIN letter and those like initial formation documents. Our clients are relying on us to keep these things, so don't be the bookkeeper that ends in engagement and doesn't give them back anything because everything's digitized. Now, maybe they sent you something and they don't remember where they had it initially, and so also we are downloading things on behalf of them as their bookkeeper. That they should actually also have. So when you disengage, hand over the keys, hand over the files, give them the opportunity to download them and encourage them to download them and help them understand what their obligations are per the IRS guidelines on what they should be keeping and how long. So let's start there. Let's start with small business requirements of record retention. So. The source that I pulled from is irs.gov and let me look at the publication number so that you can go and do your own research. IRS publication number 5 83 and 5 52, will have information about record keeping and guidelines for retention on documents. Now remember as I'm talking about this, this is stuff that your clients actually should be keeping, but if you are downloading these documents on behalf of them, you need to be giving them to them when you disengage, because most likely they haven't done the work to download them. Just be the bigger person and help them out. Right. They should not be absolved of their responsibilities just because they had a bookkeeper, but if they were paying a bookkeeper to help them keep track of all of this, just. Let them have it. Okay, so general tax records for small businesses returns and supporting documents. Our clients should be keeping these for a minimum of three years. There's caveats to that. If they under-reported income by over 25%, then they should be keeping things for six years. And if no return was filed or a fraudulent return was filed, they should be keeping things indefinitely, which means there's no statute of limitations for the IRS if they failed to file or if something was fraudulent. So I always tell my clients that like. The rule of thumb, I just think seven years is like the easy number to remember because there's other things that they should be keeping for seven years. But the rule of thumb, I tell them, keep all your stuff for seven years related to your business unless you committed fraud or you failed to file a return. there's other things in there that you don't have to keep as long, like employee records and employment tax records and. Things like that. But there are things that do need to be kept for seven years, like records for bad, debt deduction or a loss from worthless securities or property related records. You should be keeping those as long as you own the property plus seven years after disposal. So for any of you who help real estate clients, that's something you should maybe educate them on. So. All of this is really good content ideas, by the way, for your clients. So those are the IRS guidelines for small businesses when it comes to what this listener called into or called in like I'm on a radio show. What this listener left a, a question about what are we actually responsible for retaining inside of the firm? I rely on the A-I-C-P-A guidelines. If you've listened to this podcast for any amount of time, you probably know I have a CPA license. Even though I am not doing tax, I'm not doing compilation services, I'm not doing review or audit technically. Does this apply to me? Maybe not, but I'd rather be safe than sorry. And so I treat my business as if it's a, an accounting firm. The engagement letters that I use, the record retention policy that I use, the insurance that I use, I hold out as a CPA. So I. I use these policies that are recommended for CPA firms. What you do with your business is up to you. But that's just my take. I am, I like to do things way above board. So when it comes to. What we need to be keeping from our client records. We have things called work papers, so we actually are supposed to be keeping those as well. And legal documents, property records, things like that, those are actually permanent, so you should never dispose of, any legal documents pertaining to a client or property records. Everything else Is about seven years or less. Canceled checks can be 10 years. So if you are doing bank reconciliations for clients and things like that, and you're the one that holds The records of the canceled checks and things like that. maybe what your policy should be is just like 10 years across the board. I say make it easy on yourself, and make it more simple because it can get really crazy when you're like looking at personnel records being three years and internal reports being three years and financial reports being seven years. All of this stuff is kind of all over the place. So I always say like. Look at what is supposed to be kept the longest, and if you wanna simplify it, keep things that long, and then you can start disposing of things. But as far as like the one thing that is really important, the legal documents and property records of your clients, this means there's gonna be something that you keep from every single client if you, if you've ever worked with a client. So. Logistics wise, when we offboard a client, we move their folder.'cause we use Google Workspace. We just move their folder, entire folder into a folder called Past Clients. So it's not mucking up our regular like folder structure with all of our current clients, but we can always go back and look at it. Another point I wanna make is make sure that you communicate with your client when you onboard them and when you're offboarding them, what the record retention recommendations for them is, and, what your internal policy is as well. So, for instance, in our disengagement letter or our closure letter, we tell our clients that we retain files for seven years after engagement. And after that the records may be deleted. And if they come to us between now and that point, and they want records, like we're going to bill them hourly for the time it takes us to send them. But what I logistically usually do when I offboard a client is, and I'll get in, I think I've talked about this on the podcast, and I actually have another podcast slated for the future of talking about disengaging with clients and how to offboard. But what we do is we share. Our entire work paper, Google Drive folder with them, with all of the bank recs, the financial reports, everything that we've done and downloaded for them. We just share the file with them and tell them, we highly recommend you. Take this, zip it, download it, put it in a jump drive, whatever you wanna do. Within the next 30 days of disengagement, because after that, we'll charge you if we need to look for something for you. And it's just easier for them to just take the folder, make a copy of it, and be done with it. So that I highly recommend putting that in your offboarding process. Yeah, I think. That's pretty much it. There are some tools that you can probably automate some of this and setting up rules to archive things or delete in Google Workspace. If you use a client portal like canopy or content snare, you can regularly review and remove inactive client files, all that kind of stuff. So I, I recommend. If you don't have one yet, create a policy. If you're in BBA, you have access to a sample document, retention policy. You have access to sample, disengagement letters and all that fun stuff. So please utilize those resources. And like I said, if you're a listener, the other best resources to look at always are the irs.gov and the AI CPA when it comes to running your. Accounting firm. Whether or not you're a CPA, I think it's a great resource. So that is all for today. I hope this was informative for you, and you're probably realizing, wow, I've got a lot of stuff that I need to, like add to my plate. It doesn't have to be that crazy and complicated. And you've got this. So we'll talk to you soon on the next episode.

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