Financial Spring Cleaning and Digitization

Search with Ctrl + F Last updated: 2022-08-14

Guest post by Dan Matthews

Spring is just around the corner. Soon, the sun will shine longer, the birds and blooms will come back, and the IRS will be demanding that you file your taxes.

As a small business, you know that the completeness of your financial records and documentation is paramount in keeping the IRS off your back and out of your bank account. But how far do you need to go to keep your files up-to-date? What can you get rid of to keep your filing system clutter-free without risking the wrath of your accountant?

Efficient record-keeping isn’t as hard as it sounds thanks to new digitization and document management options — and the IRS’s willingness to accept them. Keep reading to find out what to keep, where to store your records, and how to securely get rid of irrelevant and unnecessary paperwork.

Keep These Documents (For Now)

Let’s start with what items you need to keep at hand to do things like file your taxes, apply for a small business loan, and just general compliance.

The IRS requires you to keep the following records for at least three years (except where noted):

  • Past tax returns
  • Receipts
  • Other financial records
  • Employment tax records (four years)

In other words, don’t touch these documents unless you have digital records and backups of those records. (We’ll get to that later).

Meanwhile, the biggest culprit of clutter is your receipts. While it’s tempting to start getting rid of them when they’ve been piling up on your desk for what feels like centuries, you shouldn’t until the three-year mark passes. If it was something you claimed on your tax return, it requires documentation. Unfortunately, there’s not much you can do but digitize them in order to keep your physical space clear.

Finally, you need to keep any documentation needed for legal reasons. You should keep any:

  • Permits
  • Contracts
  • Annual reports
  • Property records
  • Compliance documents
  • Articles of incorporation

The Benefits of Going Digital (Completely This Time)

Going digital is something that many Americans are now forced to do.

Going digital is something that many Americans are now forced to do, whether they prefer physical documentation more or not. Statistics may show that people still want paper receipts for big things like medical bills, motor vehicle renewals, property taxes, and even their credit card statements, but for everything else, it’s simply just easier to swap over to a digital medium. Further, the mass shift to digital copies of documentation is actually good news, because printed copies are fallible: they can be destroyed on purpose, by accident, or just degrade over time. Plus, paper documents come with downsides like wasting space, contributing to operations that damage the environment, and are generally just more inefficient than digital copies.

Ideally, when making the transition from paper to digital, your digitization software should provide document-management systems and imaging elements. For example, being able to tag an item as an invoice or a receipt (there’s a difference) will help you keep your finances better organized once they’re all uploaded on your computer or to the cloud. This will make it easy to pull up documents when filing for taxes, discussing information with clients, and so on, without having to dig around in physical filing cabinets.

How to Destroy Your Documents Safely

What do you do with the pile of receipts and documents that you no longer need? The answer isn’t to put them straight into the recycling bin. Destroying documents is an important part of your personal and business financial security.

At a minimum, you should be securely shredding any paper documents or digital hard drives that you no longer need. If you have a secure shredding system that can then get rid of the remains, then that is even better.

What about destroying documents you’ve kept digitally? Erasing digital files isn’t as simple as hitting delete. Understanding that ‘delete’ doesn’t mean forever is important for protecting your finances because malicious parties can still access it — even if you emptied your trash or recycle bin.

If you use a Mac, you can use a function called “Secure Empty Trash,” which will initiate a process where your Mac is ‘ready to overwrite’ the disk space and permanently remove the files from your computer. (It happens when you download a new file or application.) If you use Windows, you’ll need a third-party program to do the job for you and do so proactively. It’s also important to remember to clear any information that has been saved to the cloud, as well, as deleting it from your computer alone won’t clear any cloud information.

Will your spring cleaning efforts also extend to your email? Remember that the same issue with permanently deleting a file applies here. Most email providers empty the trash bin periodically, but you may need to do so manually. And if the data is particularly sensitive, remember that the sender still has a copy.

Spring Cleaning Can Illuminate Your Business’s Financial Health

Keeping your books in order is an indicator of your business’s overall health — and the records you keep are as important as the records you destroy.

If you haven’t already, consider implementing digitization software to help you keep on top of both your records and your finances. These software suites make tax season less painful while also ensuring that keeping all the appropriate records doesn’t get in the way of your core processes.

Author Bio:  Dan Matthews is a writer with a degree in English from Boise State University. He has extensive experience writing online at the intersection of business, finance, marketing, and culture. You can find him on Twitter and LinkedIn.