It’s January! One of my first new year tasks each year is to clean out my files and one of my New Year’s resolutions every year is to be more organized for the coming year. Easier said than done, right? Inevitably, I find myself needing something I’ve shredded already and at the end of the year I have a pile of unneeded papers to be shredded.
We have rules for cleaning out closets – we ask, “When did I last wear this?” We have rules for decluttering the rest of the house – we ask, “Does this bring me joy?” So, what are the rules for cleaning out your files? How long are you supposed to keep documents? How long should you keep those old tax returns? These are questions we are asked all the time, so we are happy to provide some guidelines.
You should keep records documenting amounts of income, deduction, or credit on your tax return until the period of limitations runs out. For most, this period is three years, but if you file a claim for a loss from worthless securities or bad debt deduction then you should keep the records for seven years. If you have not reported or under reported income by more than 25%, you should keep records for six years. If you do not file a tax return, then you should keep records indefinitely because the limitation period does not start until the return is filed. There are many experts that suggest keeping your tax returns indefinitely in case you ever need to prove a return was filed.
If the records are connected to property, then you should keep the records until the period of limitations for the year in which you disposed of the property has expired.
The IRS defines the Period of Limitations as follows (irs.gov):
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.
Records that need to be retained permanently by businesses are: ownership records, business formation documents, annual meeting minutes, by-laws, stock ledges, and property deeds.
The following charts are to be used as a guide. You should consult with your attorney and/or insurance carrier when establishing a record retention policy.
Individual Records Retention Period
|Cancelled Checks||3 Years|
|Bank Deposit Slips||3 Years|
|Bank Statements||6 Years|
|Investment Account Statements:|
|Non-Retirement||3 Years After Sale|
|Retirement||3 Years After the Sale, Rollover, or Distribution|
|Supporting Documents for Tax Returns||7 Years|
|Real Estate Records||Permanently|
|Expense Reports||3 Years|
|Divorce Decrees and Dependent Agreements||Permanently|
Business Record Retention Period
|Accident Reports / Claims (Settled Cases)||7 Years|
|Accounts Payable Ledgers and Schedules||7 Years|
|Accounts Receivable Ledgers and Schedules||8 Years|
|Bank Statements||3 Years|
|Capital Stock and Bond Records:|
|Ledgers, Transfer Registers, Stubs Showing Issues, Records of Interest Coupons, etc.||Permanently|
|Charts of Accounts||Permanently|
|Checks (Cancelled Checks for Important Payments, Special Contracts, Purchase of Assets, Payment of Taxes)||Permanently|
|Checks (Cancelled Except Those Noted Above)||7 Years|
|Contracts and Leases (Expired)||7 Years|
|Contracts and Leases Still in Effect||Permanently|
|Correspondence, General and Schedules||2 Years|
|Correspondence, legal and Important Letters||Permanently|
|Correspondence, Routine with Customers / Vendors||2 Years|
|Deeds, Mortgages and Bills of Sale||Permanently|
|Employee Personal Records (After Termination)||7 Years|
|Employment Applications||3 Years|
|Financial Statements (Year-End)||Permanently|
|General ledgers, Year-end Trial Balances||Permanently|
|Insurance Records, Policies etc.||Permanently|
|Internal Audit Reports (MISC)||3 Years|
|Inventory Records||7 Years|
|Invoices to Customers or from Vendors||7 Years|
|IRA and Keogh Plan Contributions, Rollovers, Transfers and Distribution||Permanently|
|Minute Books of Directors, Stockholders, Bylaws and Charter||Permanently|
|Payroll Records, Summaries and Tax Returns||7 Years|
|Petty Cash Vouchers||3 Years|
|Property Records, Including Costs, Depreciation Reserves, Year-End Trial Balances, Depreciation Schedules Blueprints and Plans,||Permanently|
|Purchase Orders||3 Years|
|Receiving Sheets||1 Year|
|Safety Records||6 Years|
|Sales Records||7 Years|
|Stock and Bond Certificates (Cancelled)||7 Years|
|Subsidiary Ledgers||7 Years|
|Tax Returns, Revenue Agents’ Reports and Other Documents Relating to Determination of Income Tax Liability||Permanently|
|Timecards of Daily Reports||7 Years|
|Trademark Registrations, Patents, ad Copyrights||Permanently|
|Voucher Register and Schedules||7 Years|
|Vouchers for Payments to Vendors, Employees etc. (Includes Allowances & Reimbursements of Employees, Officer etc. for Travel and Entertainment Expenses)||7 Years|
|W-2 Forms||7 Years|
ADKF is the largest, locally owned public accounting firm in San Antonio, Texas, with branch offices in Boerne and New Braunfels. We have been serving our community since 1991. We are a full-service CPA firm dedicated to providing a broad range of tax, audit, bookkeeping, tax controversy, and consulting services with superior customer service to help our clients meet their goals and objectives. Please click here to set an appointment with us.