Record Retention

What To Save – What To Throw Out

With the New Year upon us, what better time to clean “house.” It’s a good time to think about disposing of the boxes of files, receipts and other financial records that you have accumulated throughout the years and are collecting dust!

The general rule is that you must keep the information that supports the items reported on individual tax returns until the statute of limitations expires.  That is usually 3  years from the due date, including the extended date of the return.  However if the IRS believes your income was understated by 25% or more, or if there is a suspicion of fraud, there is no time limit.

While there might be some confusion and conflicting information as to how long records should be kept, I suggest the following:

     Copies of filed tax returns – keep them forever

     Supporting documentation – income records 6 years and deductions 3 years

     Unusual transactions – bad debt deductions, excessive medical and contributions and other “out of the ordinary” items should be kept forever.

     Real Estate records – Records should be kept for as long as you own the property plus at least 3 years after you sell it. Anything that substantiates your cost including improvements, refinancing documents, insurance papers and related transactions should be retained indefinitely

     Securities – all records of purchases, sales, dates acquired and sold, dividend reinvestment, stock splits and investment expenses should be maintained as long as you own the investments plus not less than 3 years after you dispose of the investments.

     IRAs – keep supporting records including reporting forms until all the money is withdrawn from the account.

     Other – the IRS requires that all records pertaining to multiple years like carry-overs, carry-backs, casualty losses and carry-forwards should be maintained indefinitely.

     Business records – generally employment records, should be retained for a minimum of 4 years.  Other records like books of original entry, general and subsidiary ledgers and journals should be kept indefinitely.

As with any important financial decision, you should consult with your business advisor, financial consultant or your CPA prior to disposing of any records.  This information has been summarized from publications of the IRS.  If you have specific questions about your situation, contact me – tel: 917-744-3661917-744-3661 or email:  I am happy to help.