Life Events

Few people enjoy keeping paperwork, yet the right records can save you money in an audit, support a loan application or settle a dispute years later. The trick is knowing what to keep, for how long, and what you can safely shred.

The General Rule for Tax Records

The IRS generally has a limited number of years after you file to assess additional tax, and that period is longer in some situations, such as substantial underreporting of income. As a practical matter, many advisors suggest keeping tax returns and supporting documents for at least three years from the filing date, and often longer for added safety. Check irs.gov for the current guidance on how long to keep records.

Keep Some Records Much Longer

• Tax returns themselves. Many people keep copies of filed returns indefinitely. They help you prepare future returns and show your history.
• Property records. Keep purchase documents, closing statements and receipts for improvements until well after you sell the property, because they establish your basis for figuring gain or loss.
• Investment records. Keep trade confirmations and basis information until the position is sold and the related return's review period has passed.
• Retirement account records. Keep documentation of nondeductible IRA contributions (Form 8606) and Roth contributions for as long as you hold the account.
• Business formation and ownership documents. Keep these for the life of the business and often beyond.

Employment and Business Records

Employers must retain payroll and employment tax records for a set number of years, and other rules apply to personnel files and benefit plans. Business owners should keep invoices, bank statements, receipts, mileage logs and asset purchase records. If you claim depreciation, keep the asset records until after the final year of depreciation plus the review period.

Everyday Household Records

• Keep monthly bank and credit card statements until you have reconciled them, and keep those that support tax deductions.
• Keep medical bills, charitable receipts and property tax statements that support a deduction with the related return.
• Keep insurance policies while they are active and for a while after, in case of late claims.
• Keep wills, trusts, powers of attorney, birth and marriage certificates and similar documents permanently.

Going Digital

Scanned copies are generally acceptable for most tax records as long as they are legible and well organized. Back them up in a second location and protect them with strong passwords. Shred paper originals that contain account numbers or Social Security numbers rather than tossing them out.

Not sure whether a particular document can go? Ask our office and we will help you decide.