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

Hey ambitious bookkeepers!

A few weeks ago, I received an audio question from one of my Bookkeeping Business Accelerator students that really got me thinking. She asked something that seems straightforward on the surface but is actually incredibly complex: "How long should we retain client documents in today's digital world?"

You know how it used to be - don't keep anything past the three, five, or seven-year limit because if your client gets audited, the IRS can ask for whatever you have. But now that we're living in this digital age with cloud storage and files going back years and years, does that change anything? Should we be purging old files from client folders?

Initially, I thought this would be a quick, straightforward answer. But as I started diving into our own record retention policy and comparing IRS guidelines for small businesses with AICPA guidelines for accounting firms, I realized this topic is way more nuanced than I expected.

Listen here or on your favorite podcast player, or watch the video version on YouTube >>

Now let's dive into some highlights!

Why You Need a Document Retention Policy (Yes, Even as a Solo Bookkeeper)

First things first - every firm owner should have a document retention policy. Even if you're flying solo, you need this for your own peace of mind and to have something concrete to reference when it's time to decide whether to delete files or keep them.

Right now, we're in 2025, and I've been in business for eight years. Technically, I could be deleting some files from my earliest clients if they're no longer with us. It's honestly an exercise that's been on my back burner, but having a clear policy makes these decisions so much easier.

Here's what I recommend: develop an internal policy that covers what to keep, how long to keep it, and train your team on it. Even if you end up hiring an operations manager down the road, you're ultimately responsible as the CEO for making sure this stuff gets handled properly.

IRS Guidelines: What Your Clients Should Be Keeping

Let me start with what your clients are actually responsible for keeping, according to IRS Publications 583 and 552. (And yes, I'm giving you the publication numbers so you can do your own research - never just blindly trust what you hear on podcasts, even mine!)

General tax records (returns and supporting documents): Minimum of three years, but there are important caveats:

• If they under-reported income by over 25%: Six years
• If no return was filed or a fraudulent return was filed: Indefinitely (no statute of limitations)

Other important timeframes:

• Employee records and employment tax records: Varies, but generally shorter periods
• Bad debt deduction or loss from worthless securities: Seven years
• Property-related records: As long as they own the property plus seven years after disposal

For simplicity, I tell my clients to keep everything business-related for seven years unless they committed fraud or failed to file returns. It's an easy number to remember and covers most scenarios.

AICPA Guidelines: What We Should Be Keeping as Bookkeepers

Now here's where it gets interesting. Even though I have a CPA license, I'm not doing tax prep, compilations, reviews, or audits. Do these guidelines technically apply to me? Maybe not. But I'd rather be safe than sorry.

I treat my business like an accounting firm. The engagement letters I use, the record retention policy I follow, the insurance I carry - I hold myself to CPA standards. You can decide what's right for your business, but I like doing things way above board.

According to AICPA guidelines:

• Work papers: Seven years or less
• Legal documents and property records: Permanent (never dispose of these)
• Most other client records: Seven years or less
• Canceled checks: Up to 10 years

Here's my recommendation: Look at what's supposed to be kept the longest and simplify by keeping everything for that duration. It's much easier than trying to track different retention periods for different types of documents.

The Digital Storage Reality

Just because we have unlimited cloud storage doesn't mean we should keep everything forever. We still need to be intentional about what we're retaining and why.

In our firm, we use Google Workspace, and when we offboard a client, we simply move their entire folder into a "Past Clients" folder. This keeps our active client structure clean while maintaining access to historical records.

Your Responsibility vs. Your Client's Responsibility

Here's something crucial that many bookkeepers don't think about: our clients are relying on us to keep documents they should actually have themselves.

Most clients aren't downloading:

• Reports from Gusto
• Financial statements we prepare
• Bank reconciliations
• Important formation documents like EIN letters

When you disengage with a client, don't be the bookkeeper who hands over nothing just because everything's digitized. Be the bigger person. They were paying you to help keep track of all this stuff, so help them out.

Our Offboarding Process

Here's exactly what we do when we offboard a client:

1. Share the entire work folder - We give them access to our complete Google Drive folder with all bank reconciliations, financial reports, and everything we've downloaded for them
2. Set clear expectations - We tell them in our disengagement letter that we retain files for seven years after engagement, and after that, records may be deleted
3. Give them a deadline - They have 30 days to download and save everything. After that, we'll bill hourly for any file retrieval requests
4. Communicate retention recommendations - We explain both what they should be keeping according to IRS guidelines and what our internal policy is

Making It Work Logistically

You don't need to overcomplicate this. Here are some practical tips:

• Use automation tools - Set up rules in Google Workspace to archive or organize files automatically
• Regular reviews - If you use client portals like Canopy or Content Snare, regularly review and remove inactive client files
• Keep it simple - Consider keeping everything for 10 years across the board to avoid confusion
• Document everything - Make sure your policies are written down and communicated clearly to clients

The Bottom Line

Document retention in the digital age isn't about keeping everything forever just because you can. It's about having a thoughtful, defensible policy that protects both you and your clients while meeting professional standards.

Remember: legal documents and property records are permanent. Most everything else can be disposed of after seven to ten years. When in doubt, keep it longer rather than shorter, and always give your clients the opportunity to take their files when you part ways.

If you're in my Bookkeeping Business Accelerator, you already have access to sample document retention policies and disengagement letter templates. If you're not, I highly recommend creating your own policy using the IRS and AICPA resources I mentioned.

This might seem like a lot to add to your plate, but it doesn't have to be crazy complicated. Start with a simple policy, communicate it clearly to your clients, and adjust as needed. You've got this!

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