Record Retention Guide
To decide how long you need to retain your tax records, use this guide.
If the IRS believes the revenues have been significantly underreported, an audit may go back six years.
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Do not waste your efforts due to miscalculation.
Federal legislation allows you to retain, for three years, copies of your tax returns and supporting records. This is called the “three-year law” and leads many individuals to assume that they are safe if they keep their records for this period of time.
However, if the IRS suspects that you have substantially underreported your sales by 25% or more or believes that there may be evidence of fraud, an audit may want to go back six years. Use the following instructions to be safe.
Build a backup set of documents and electronically archive them.
It is simpler than ever to maintain a backup collection of records, including, for example, bank accounts, tax returns, insurance plans, etc., since many financial institutions electronically offer statements and documentation, and much financial information is accessible on the Internet.
They can be scanned and transferred to a digital format even if the original records are only issued on paper. Taxpayers can download them to a backup storage unit, such as an external hard drive until the records are in electronic form or burn them on a CD or DVD.
Online backup, which is the only way to ensure the information is completely preserved, could also be considered. With online backup, files are stored in another area of the world so that records remain secure if a hurricane or other natural disaster occurs.
Caution!
In today’s world, identity fraud is a significant problem, and it is necessary to take every precaution to prevent it. It would be best if you disposed of these records by shredding them and not disposing of them by throwing them away in the garbage after it is no longer appropriate to maintain your tax records, financial statements, or any other documents of your personal information.
Business Documents To Keep For One Year
- Correspondence with Customers and Vendors
- Duplicate Deposit Slips
- Purchase Orders
- Receiving Sheets
- Requisitions
- Stenographer’s Notebooks
- Stockroom Withdrawal Forms
Business Documents To Keep For Three Years
- Employee Personnel Records (after termination)
- Employment Applications
- Expired Insurance Policies
- General Correspondence
- Internal Audit Reports
- Internal Reports
- Petty Cash Vouchers
- Physical Inventory Tags
- Savings Bond Registration Records of Employees
- Time Cards For Hourly Employees
Business Documents To Keep For Six Years
- Accident Reports, Claims
- Accounts Payable Ledgers and Schedules
- Accounts Receivable Ledgers and Schedules
- Bank Statements and Reconciliations
- Cancelled Checks
- Cancelled Stock and Bond Certificates
- Employment Tax Records
- Expense Analysis and Expense Distribution Schedules
- Expired Contracts, Leases
- Expired Option Records
- Inventories of Products, Materials, Supplies
- Invoices to Customers
- Notes Receivable Ledgers, Schedules
- Payroll Records and Summaries, including payment to pensioners
- Plant Cost Ledgers
- Purchasing Department Copies of Purchase Orders
- Sales Records
- Subsidiary Ledgers
- Time Books
- Travel and Entertainment Records
- Vouchers for Payments to Vendors, Employees, etc
- Voucher Register, Schedules
Business Records To Keep Forever
Although federal laws do not mandate you to maintain “forever” tax records, there will be other reasons why you will want to preserve these documents indefinitely in certain instances.
- Audit Reports from CPAs/Accountants
- Cancelled Checks for Important Payments (especially tax payments)
- Cash Books, 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
Personal Documents To Keep For One Year
- Bank Statements
- Paycheck Stubs (reconcile with W-2)
- Canceled checks
- Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year end statement)
Personal Documents To Keep For Three Years
- Credit Card Statements
- Medical Bills (in case of insurance disputes)
- Utility Records
- Expired Insurance Policies
Personal Documents To Keep For Six Years
- Supporting Documents For Tax Returns
- Accident Reports and Claims
- Medical Bills (if tax-related)
- Property Records / Improvement Receipts
- Sales Receipts
- Wage Garnishments
- Other Tax-Related Bills
Personal Records To Keep Forever
- CPA Audit Reports
- Legal Records
- Important Correspondence
- Income Tax Returns
- Income Tax Payment Checks
- Investment Trade Confirmations
- Retirement and Pension Records
Special Circumstances
- Car Records (keep until the car is sold)
- Credit Card Receipts (keep with your credit card statement)
- 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)
- Property Records / improvement receipts (keep until property sold)
- 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)
- Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)