Tax Record Retention: How Long Should You Keep Your Documents?

Business Record Retention

Records to Keep for One Year:

• Customer and vendor correspondence
• Duplicate deposit slips
• Purchase orders (except the purchasing department copy)
• Receiving sheets
• Requisitions
• Stenographer’s notebooks
• Stockroom withdrawal forms

Records to Keep for Three Years:

• Employee personnel records (after termination)
• Employment applications
• Expired insurance policies
• General correspondence
• Internal audit reports and reports
• Petty cash vouchers
• Physical inventory tags
• Employee savings bond registration records
• Time cards for hourly employees

Records to Keep for Six Years:

• Accident reports and claims
• Accounts payable/receivable ledgers and schedules
• Bank statements and reconciliations
• Cancelled checks and stock certificates
• Employment tax records
• Expense analysis/distribution schedules
• Expired contracts, leases, and option records
• Product/materials inventories
• Customer invoices
• Notes receivable ledgers
• Payroll records, including pension payments
• Plant cost ledgers
• Purchase order copies
• Sales records
• Subsidiary ledgers
• Time books
• Travel/entertainment records
• Vendor/employee payment vouchers

Note: Keep records related to bad debt or worthless securities for seven years.

Records to Keep Forever:

• CPA/auditor reports
• Important canceled checks (e.g., tax payments)
• Cash books, charts of accounts
• Current contracts and leases
• Corporate documents (e.g., incorporation, by-laws)
• Fixed asset additions and depreciation schedules
• Deeds and mortgages
• Financial statements (year-end)
• Legal records and correspondence
• Property appraisals
• IRS audit reports
• Retirement/pension records
• Tax returns and supporting documents
• Trademark and patent registrations

Personal Record Retention

Documents to Keep for One Year:

• Bank statements
• Paycheck stubs (reconcile with W-2)
• Canceled checks
• Monthly/quarterly mutual fund/retirement contribution statements (reconcile with year-end statement)

Documents to Keep for Three Years:

• Credit card statements
• Medical bills (for insurance disputes)
• Utility records
• Expired insurance policies

Documents to Keep for Six Years:

• Supporting documents for tax returns
• Accident reports and claims
• Medical bills (tax-related)
• Property records/improvement receipts
• Sales receipts
• Wage garnishment records
• Other tax-related bills

Note: Keep records related to bad debt or worthless securities for seven years.

Documents to Keep Forever:

• CPA audit reports
• Legal records
• Important correspondence
• Income tax returns and payment checks
• Investment trade confirmations
• Retirement/pension records

Special Circumstances

Items to Keep:

• Car records: Keep until the car is sold
• Credit card receipts: Keep with the credit card statement
• Insurance policies: Keep for the life of the policy
• Mortgages/Deeds/Leases: Keep 6 years beyond the agreement’s term
• Pay stubs: Keep until reconciled with W-2
• Property records/Improvement receipts: Keep until the property is sold
• Sales receipts: Keep for the life of the warranty
• Stock and bond records: Keep 6 years beyond the sale date
• Warranties/Instructions: Keep for the product’s life
• Other bills: Keep until payment is verified on the next bill
• Depreciation schedules/capital asset records: Keep for 3 years after the asset’s tax life

Back-Up and Security Tips

• Digitize Records: Scan paper records and store them electronically. Many financial institutions now offer digital access to statements, and online backups provide added protection against natural disasters.
• Shred Sensitive Documents: Once tax records and other personal documents are no longer needed, make sure to dispose of them securely by shredding rather than throwing them in the trash. This helps prevent identity theft.

By following these guidelines, you can ensure that your records are organized, secure, and kept for the appropriate length of time.