Nonprofit Records Retention Guidelines

What to Keep

• Asset Records: Track the acquisition, usage, and disposal of all assets, including purchase price, depreciation, improvements, and sale details. These records provide the foundation for accurate asset valuation and reporting.
• Financial Documentation: Hold onto documents supporting gross receipts, purchases, and program expenses. This documentation includes cash register tapes, invoices, receipts, bank statements, and credit card statements. These records substantiate claimed deductions and income.
• Employment Tax Records: Maintain meticulous records on employee wages, tax deposits, withholding allowances (W-4 forms), and other employment-related taxes to ensure compliance with employment tax regulations.

Keeping it Organized

• Choose a System: The IRS doesn’t prescribe a specific recordkeeping system. Select a method that fits your organization’s needs, clearly showing income and expenses. Grouping documents by year and type (e.g., income, expense category) is a common and effective approach.
• Documentation Variety: While receipts and invoices are key, don’t underestimate the value of other supporting documentation. Cash register tapes, bank deposit slips, canceled checks, and petty cash slips all contribute to building a robust evidence base.

Retention Time

• IRS Requirements: You must keep records for at least three years after the tax return due date (filing date, whichever is later) to support potential claim amendments or IRS audits.
• Beyond the Minimum: Certain records require longer retention. Permanent records like incorporation documents and tax-exempt status applications should be kept indefinitely. Employment tax records need to be retained for at least four years after the tax is due or paid. Finally, keep records related to grants, insurance policies, and loan agreements for as long as required by the respective entities.

Seeking Expert Guidance

For complex financial matters and nuanced tax questions, consulting with a Brady Ware nonprofit tax advisor is highly recommended. We can provide tailored advice on recordkeeping practices and ensure your organization stays compliant with relevant regulations.

Remember: Impeccable recordkeeping is not just an IRS requirement; it’s a cornerstone of responsible financial management and risk mitigation. By implementing these practices, you can navigate audits with confidence and focus on achieving your organization’s mission with peace of mind.

Brady Ware Nonprofit Advisors want to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.