Mark Pestronk
Q: Our agency needs less office space than we currently have, so next month we are moving into a smaller office and closing our branch office. I would like to throw away as much paper as possible, so I need to know exactly what we are required to retain, and for how long. Do we need to retain client records such as signed charge forms? When ARC simplified the standard agency agreement two years ago, did it cut down on the paper we have to retain?
A: If you have a high-speed scanner, such as those available on Amazon for about $400, you can scan all your papers into computer files and retain no paper whatsoever. However, if you don't have the time or money for such a project, here are the papers that you must retain:
ARC's list of documents did not shrink when the new agreement came out, but there is less to retain because agencies generate much less paper than they used to. You can find the list at www.arccorp.com/iah/section_c.pdf, and you must keep the documents for at least two years from the "submission deadline" for each kind of document.
The IRS requires you to keep your records of revenue and expenses for three years after you file your tax returns.
There are several exceptions to the three-year rule. Withholding tax records must be kept for four years after the date the tax is due or is paid, whichever is later.
If you claim a bad-debt deduction, you need to keep the records for seven years. When you buy an asset, you need to keep the purchase record for three years after you sell or finish depreciating it, whichever is later. Finally, if you don't file tax returns, don't report more than 25% of your income or commit tax fraud, you can't throw away anything that pertains to what you should have reported.
For all other business transactions, you need to refer to your state's statute of limitations on written contracts, leases and the like. Statutes of limitations are different in each state. For written contracts, they vary from as little as three years to as many as 15 years; the average is about five years.
You can find your state's rule at www.fair-debt-collection.com/SOL-by-State.html.
Generally, you can start counting the years when you made or received the last payment under a contract or debt. However, correct counting can be tricky, especially if more than one state is involved.
Remember that an airline can try to collect on a debit memo up to your state's statute of limitations on contracts. Therefore, you are probably better off keeping the records required by ARC for the number of years in your state's statute, so that you can defend against debit memos, as it is no defense to argue that you don't have records because ARC allowed you to throw them away.
Your state's statute of limitations on contracts should also be your guideline for other business papers, such as bank statements, office leases, equipment leases, GDS contracts, payroll records, personnel records and all correspondence.
Finally, business records that you need to keep permanently are: incorporation documents, bylaws, minutes, stock certificates and stock ledger, although, again, you can scan all these into a computer.