Record Retention Guide for Taxes

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date. Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

Period of limitations that apply to income tax returns

Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
Keep records indefinitely if you do not file a return.
Keep records indefinitely if you file a fraudulent return.
Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Property Records

Keep records relating to property and its improvements until the period of limitations expires for the year in which you dispose of the property.
keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.
If you received property in a nontaxable exchange, keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property.

Indefinite Record Retention

Audit Reports from CPAs/Accountants
Payment confirmation for Important Payments (especially tax payments)
Charts of Accounts
Contracts, Leases Currently in Effect
Corporate Documents (incorporation, charter, by-laws, etc.)
Documents substantiating fixed asset additions
Deeds
Depreciation Schedules
Financial Statements (Year-End)
General and Private Ledgers, Year-End Trial Balances
Insurance Records, Current Accident Reports, Claims, Policies
Investment Trade Confirmations
IRS Revenue Agents’ Reports
Journals
Legal Records, Correspondence and Other Important Matters
Minute Books of Directors and Stockholders
Mortgages, Bills of Sale
Property Appraisals by Outside Appraisers
Property Records
Retirement and Pension Records
Tax Returns and Worksheets
Trademark and Patent Registrations

Tips

Car Records (keep until the car is sold)
Credit Card Receipts keep them until verified against the monthly card statement. Save large items.
Insurance Policies (keep for the life of the policy)
Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
Pay Stubs (keep until reconciled with your W-2)
Sales Receipts (keep for life of the warranty)
Stock and Bond Records (keep for 6 years beyond selling)
Warranties and Instructions (keep for the life of the product)
Other Bills (keep until payment is verified on the next bill)

Secure Data Storage

Protect your financial information with secure storage solutions, like cloud backups and encryption. Shred documents after digitizing them. Have two locations for your digital storage. Regularly back up your hard drives, change passwords, and use dual authentication.

Automation

Most bookkeeping software (Xero, QuickBooks etc.) now has the functionality where you can attach a photo or PDF of the receipt/invoice and file and access it where the transaction is recorded in your books which saves a lot of time and space, and provides secure and seamless access to the data. The mobile apps of Quickbook and Xero accounting softwares offer a function that allows you to snap a copy of your receipts and upload them into your company’s books on the go. Be consistent and thorough in managing your books and monthly reconciliations. Contact us to help you create automated record keeping procedures and systems, thus help you maintain clean and thorough financial and legal records. As digital records are acceptable, after uploading them into your bookkeeping system, shred them, in case you had a hard copy. Most likely you had received or downloaded a digital file of the document.

Business Records

3 Years

6 Years

All Accounts reconciliations- Accounts Receivable
Accounts Payable; Inventory; Bank Accounts, etc.
Employee Personnel Records (after termination)
Employment Applications
Expired Insurance Policies
General Correspondence
Internal Audit Reports
Internal Reports
Petty Cash Vouchers
Physical Inventory Tags
Time Cards For Hourly Employees

Accident Claims Reports
Accounts Payable Ledgers, Accounts Receivable Ledgers and Bank Statements and Reconciliations
Cancelled Stock and Bond Certificates
Employment Tax Records
Expense Analysis and Expense Distribution Schedules
Expired Contracts
Expired Leases
Option Records
Inventories of Products, Materials
Supplies Invoices; Customers Notes; Receivable Ledgers
Payroll Records and Summaries, including payment to pensioners
Plant Cost Ledgers
Purchase Orders, Sales Records, Subsidiary Ledgers
Travel and Entertainment Records
Vouchers for Payments to Vendors, Employees, etc.-Voucher Register

Personal Records

3 Years

6 Years

Credit Card Statements
Bank Statements
Paycheck Stubs (reconcile with W-2)
Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year-end statement)
Medical Bills (in case of insurance disputes)
Utility Records
Expired Insurance Policies

Supporting Documents For Tax Returns
Accident Reports and Claims
Medical Bills (if tax-related)
Sales Receipts
Wage Garnishments

Key takeaways

Documents that define your personal and financial life—like your birth certificate, marriage license, large physical assets and lifestyle expenses and tax returns—should be kept forever.
Hold on to records that support information on your tax returns for 3 years except for special circumstances which can be 7 years.
Major ticket items that support over 70% of your expenses and revenue to defend against any fraudulent claims in tax audit, divorce or business disputes.
Digitizing and shredding your paper documents can cut the risk of fraud and identity theft.