Are you stressing out at tax time trying to find all the necessary documents to file your tax returns? Do you wonder what records are important to save and what’s not? And how long should you save them; 3 years or 7 years?

Your financial and tax records can consist of piles of expense receipts, employer pay stubs, bank statements, insurance policies and tax returns. Not only information from the current year, but paperwork may have accumulated over the last few years.

Record-keeping should be simple. Knowing what records to keep and how long to keep them is the vital starting point to organizing your records.

Individuals

To organize financial papers, separate your current year statements, major purchase receipts, pay stubs and expenses paid. The majority of your Yearend statements and tax forms are delivered in January. If you itemize, total all current year expenses before submitting to your Accountant. Often your Accountant will have a tax questionnaire to help you organize and to communicate all of the events of the past year, with a tax consequence, to your accountant.

Dispose of:

• Records that are no longer needed for tax purposes
  • o Pay stubs after reconciled with W-2
  • o ATM and bank deposit slips (once reconciled with statement)
  • o Expired warranties

Keep for 3 years:

• Household expenses paid

Keep for 7 years:

• Bank / Credit card statements
• Tax returns with documentation

Indefinitely:

• Large purchase items (with warranties)
• Auto titles, mortgage and loan papers
• Insurance policies
• Divorce and child custody papers
• Copies of Wills and POAs
• Stock certificates

Financial records that pertain to assets that could grow in value, such as a home or rental property, should be retained until you sell the asset.

Business Owners       

You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out (refer to IRS Pub. 583).

If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. For more information about recordkeeping for employment taxes, see Publication 15.

Electronic storage vs. Paper storage

Regardless of how you track or retain you financial and tax records, they should be kept in a secure, accessible place. Only you know the best way to store and access your financial records. Create a system that is easy for you to remember and use.  You should also share with a relative or friend, someone you trust, with a “key” to your important documents in case of emergency.

 

Summary

The main reason to hold on to your tax returns and supporting documentation is so you can address any issues with the IRS on a return.  Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.

Make sure when disposing of any sensitive documents, especially those with personal information such as SS# or account numbers, that they are shredded.

For a detailed record retention guide list, click here: