To Keep, Or Not To Keep....

One of the questions we get asked most frequently is about how long documents should be kept. Here are some general guidelines based on our experience and federal statutes of limitations for income tax purposes. Your state may have longer statutes, so use this list as the guide, not the rule.

45 Days. Pay stubs usually have year-to-date information on them. Once you've received a new one you shouldn't need the previous stubs unless you are applying for a loan, etc. Bank receipts also can be tossed once you have reconciled with your bank statement. Other receipts and cancelled checks, unless needed as evidence for a tax deduction, can be discarded after 45 days.

3 Months. Most bank and credit card statements, as well as utility bills, are unnecessary after the account has been reconciled and/or paid. Unless you need a document as evidence for a tax deduction, discard your statements after three months. If you need to go farther back, the provider will have records you can request.

3 Years. Businesses should keep employment applications three years. Employee personnel files should be kept until three years after the employee is terminated. 

4 Years. Businesses should keep all payroll tax records at least four years. This includes everything from the W-4 to health coverage forms. Personal insurance records should also be kept four years. Keep premium statements, documents for home claims, doctor bills, prescription records, etc. Documents for any pending claims should be kept longer.

7 Years. The IRS will generally ask any questions it has about tax returns within three years. However, they can go back as far as six years if you failed to report more than 25% of your income. If the IRS can prove fraud on your return, there is no statute, and no limit on how far back they can go. Most operational business records, including receipts to document business expenses, should be kept seven years.

Until after.... Keep a file for each asset you own, whether it is a piece of real estate, an investment, or business equipment. The file should include information about the purchase date, how much you originally paid, subsequent cash investments/property improvements, depreciation, etc. These records should be kept at least three years after you dispose of the asset.

As you consider storage of records, remember that you don't have to keep boxes and boxes of files. Scan any documents you don't receive electronically and make a backup to keep them safe. Cloud storage is ideal, to prevent loss due to damage to hardware such as DVDs or flash drives. If you do keep paper documents, remember to shred them and not throw them in the trash. Identity theft is far to common for anyone to believe "it won't happen to me."

If you have more questions or want to seek clarity about a specific item, give us a call.