Record Retention - Best Practices

For three years, keep copies of your tax returns and accompanying documents. Many people mistakenly believe that as long as they retain their records on hand for three years, they have complied with the record retention requirement and are safe. However, if the IRS believes you have grossly underreported your income (by 25% or more) or that there may be indications of fraud, it may conduct an audit going back six years.

Create a backup set of documents and save them electronically. Now that financial institutions give statements and papers electronically and a lot of financial information is available online, keeping a backup set of records is easier than ever. Bank statements, tax returns, insurance policies, and other types of records are examples of this.

Even if the original records are only available in paper form, they can be scanned and transformed into a digital version. Taxpayers can download the papers to a backup storage device, such as an external hard drive, once they are made available electronically.

You might also think about using online backup, which guarantees complete data security. Given how serious of a problem identity theft is, it is imperative to take all required precautions to avoid it. When you no longer need to maintain your tax records, financial statements, or other documents containing your personal information, shred them instead of throwing them in the trash.

 

Business Documents To Keep For One Year (Record Retention)

  • Correspondence With Customers And Vendors
  • Duplicate Deposit Slips
  • Purchase Orders
  • Receiving Sheets
  • Requisitions
  • Stockroom Withdrawal Forms

Business Documents To Keep For Three Years (Record Retention)

  • Employee Personnel Records
  • 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 Records To Keep Forever (Record Retention)

While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you will want to retain these documents indefinitely.

  • 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 (Record Retention)

  • Bank Statements
  • Paycheck Stubs
  • Canceled Checks
  • Monthly And Quarterly Mutual Fund And Retirement Contribution Statements

Personal Documents To Keep For Three Years (Record Retention)

  • Credit Card Statements
  • Medical Bills
  • Utility Records
  • Expired Insurance Policies

Personal Documents To Keep For Six Years (Record Retention)

  • Supporting Documents For Tax Returns
  • Accident Reports And Claims
  • Medical Bills (If Tax Related)
  • Sales Receipts
  • Wage Garnishments
  • Other Tax Related Bills

Personal Records To Keep Forever (Record Retention)

  • CPA Audit Reports
  • Legal Records
  • Important Correspondence
  • Income Tax Returns
  • Income Tax Payment Checks
  • Investment Trade Confirmations
  • Retirement And Pension Records

Special Circumstances (Record Retention)

  • 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)

Here is the link to the best record retention practices per IRS: Managing Your Tax Records After You Have Filed.