When it comes to saving things, there are really two kinds of people: Those who tend to save everything, forever. And those who throw it all away or delete it at the earliest possible moment, and sometimes before.

The same is often true for businesses and not-for-profit organizations. They can save too little or too much, for too long or not long enough.

So, when it comes to the digital and paper records that support your federal tax filings, which documents should you keep and for how long?

Although definitive rules are rare, a set of guidelines can help you answer the question.

Impact of the Statute of Limitations
As a general rule, you save the digital and paper records that can protect you — or your business or not-for-profit organization — during an IRS audit or help you file an amended return for a refund.Twitter link in Bader Martin blog post

That period of time is governed by the applicable statute of limitations, which established the period during which the IRS can review your records and you can file an amended return.

bullet graphic: green arrow  Completed Tax Returns
There is no statute of limitations for failing to file a return. It’s generally wise to keep copies of your prior years’ tax returns forever so that, if an issue ever arises, you can prove to the IRS that you actually did file.

If you’ve lost or misplaced your copy of a previously filed individual tax return, you can request a free tax return transcript from the IRS website. The transcript shows most line items from your tax return as it was originally filed, including accompanying forms and schedules. If you need a complete copy of the tax return, including attachments, you’ll need to file Form 4506 with the IRS. There is a charge for this service.

bullet graphic: green arrow  Substantiating Paperwork
In most cases, the IRS can audit your tax return for three years after the return is filed (or the due date, if later). You can also file an amended return during this time period if you missed a deduction, overlooked a credit, or misreported your income.

This means you should retain all of the paperwork that backs up the items on your tax return for three years. That paperwork includes receipts (such as those for flexible spending accounts), canceled checks, W-2s and other supporting records

There are, however, certain exceptions to the three-year rule.

— The IRS has up to six years to conduct an audit if you understate your income by more than 25 percent of the gross income shown on the return.

— You have up to seven years to amend your return in order to take deductions for worthless securities. Don’t shred any records that would support such deductions.

— If the IRS alleges your return is fraudulent, there is no statute of limitations. They can come after you at any time.

 

Record Retention Guidelines for Businesses and Not-for-Profits

Retention Period of One Year
Purchase orders (except purchasing department copy)
Receiving sheets
Requisitions
Retention Period of Three Years
Contractors’ payroll information, from date of completion of contract
Correspondence with customers or vendors
Employment applications, for applicants not hired
Internal reports (miscellaneous)
Physical inventory documentation
Tip reporting and tip substantiation documents
Retention Period of Four Years
Payroll registers
Sick pay, vacation pay and PTO documentation
Retention Period of Five Years
Employee benefits records, including life insurance benefits, dental benefits and garnishments
Retention Period of Seven Years
Accident reports and claims, for settled cases
Accounts receivable aging reports, transaction detail reports and invoices
Accounts payable transaction detail reports and schedules
Bank statements and reconciliations
Budgets
Cash slips, charge slips, expense report and petty cash records
Deposit slips, bank
List of products, materials and supplies
Invoices to customers and invoices from vendors
Notes receivable transaction detail reports and schedules
Personnel records of terminated employees
Purchase orders, purchasing department copies
Sales records
Scrap and salvage records, including those pertaining to inventories and sales
Voucher registers and schedules
Vouchers for payments to vendors, contractors and employees, including allowances and reimbursements for travel and entertainment expenses of employees and officers
Retention Period of Ten Years
Canceled checks (Note the exception below, for which a permanent retention period applies)
Contracts and leases that have expired
Insurance policies that have expired
Payroll records and summaries, including payments to former employees based on termination date
Permanent Retention Period 
Annual reports
Audit reports, internal and external
Capital stock and bond records: transaction detail reports, transfer registers, stubs showing issues, record of interest coupons, options
Canceled checks for important payments, such as taxes, purchases of property, and special contracts. These checks should be filed with the papers pertaining to the underlying transaction.
Charts of accounts
Contracts and leases that are still in effect
Corporate documents, including articles of incorporation, bylaws and charter, minute books of directors and stockholders, board and committee communications, initial property transfers from incorporators
Correspondence relating to legal and important matters
Deeds, mortgages, title papers, bills of sale
Depreciation schedules
Dividend register and canceled dividend checks
Financial statements, end-of-year (and, optionally, monthly statements)
General and subsidiary transaction detail reports and end-of-year trial balances
Insurance records, current accident reports, claims and policies
Investments: security and asset acquisition records
Journals and journal entries
Patent records
Partnership agreements
Property records—including costs, depreciation reserves, end-of-year trial balances, depreciation schedules, blueprints, and plans
Stock and bond certificates (canceled) and option agreements
Tax returns and worksheets, revenue agents’ reports, and other documents relating to the determination of your various federal, state and local tax liabilities
Trademark registrations
W-2 forms

 

Record Retention Guidelines for Individual and Families

Retention Period of Three Years
Investments in limited partnerships or passive activities, after a subsequent sale
Tip reporting and tip substantiation documents
Retention Period of Seven Years
Accident reports and claims, for settled cases
Bank statements
Bank deposit slips
Retention Period of Ten Years
Canceled checks (Note the exception below, for which a permanent retention period applies)
Contracts and leases that have expired
Insurance policies that have expired
Permanent Retention Period 
Canceled checks for important payments, such as taxes, purchases of property, and special contracts. These checks should be filed with the papers pertaining to the underlying transaction.
Investments in limited partnerships or passive activities, including Schedules K-1
Contracts and leases that are still in effect
Correspondence relating to legal and important matters
Deeds, mortgages, title papers, bills of sale
Insurance records, current accident reports, claims and policies
Statements and purchase and sale records for stocks, bonds and other investments.
Calculating gains or losses requires information regarding purchase date, price, commission and dividend reinvestment
All records pertaining to IRAs and Roth IRAs, including all contributions and withdrawals
Real estate records to substantiate the cost and tax basis of your home or other real estate — including any blueprints and plans — plus any records relating to the mortgage and mortgage refinancing, settlement and closing costs, cost of improvements, any casualty losses and related insurance reimbursements
Stock option agreements and other compensation-related agreements
Tax returns, worksheets, and other documents relating to the determination of your various federal, state and local tax liabilities

 

It’s important to note that each state may also have its own record retention requirements. And there are non-tax record retention requirements that may differ from the tax requirements — for example, an insurance company’s requirements to document casualty losses.

 

 


Don’t know what files to keep?

Let us hear from you. We can help.

STEPHANIE RITCHIE
Bader Martin EmailBader Martin PhoneLinkedInBader Martin Profile