It’s tax time and you have piles of receipts, bank statements, tax forms scattered all about. If you work from a home office, filing space is definitely at a premium so here is a guide of what records you need to keep, what you can save electronically and what records you are safe to shred and destroy.
Federal law requires you to maintain copies of your business tax returns as well as your personal tax returns for three years including all the supporting documentation for those returns. The IRS calls this the “three-year law.” However, if the IRS believes you have consistently under reported your income by 25% or more or believes fraud may be involved, they may go back six years for an audit but the requirement to maintain your records is indefinite. It is recommended that you keep copies of all your business and personal tax returns indefinitely. It is also important to note that the statute of limitation does not begin until the tax return has been filed and if the return is considered fraudulent there is no limitation on when the records can be requested.
Listed below is a breakdown of the records you need to save and for how long based on current IRS guidelines. Again, please use common sense to make the right decision between keeping too much or not keeping records long enough. If you have a question about a specific document, please consult with either your accountant or attorney prior to destroying. You certainly do not want to be caught without the requested paperwork if contacted by the IRS.
Business documents to keep for three years:
* Bank deposit slipsrn* Cancelled checksrn* Correspondence with customers and vendorsrn* Credit card statementsrn* Employee personnel records (after termination)*
* Employment applications*
* Expense reportsrn* Expired Insurance policiesrn* Petty cash vouchersrn* Physical inventory tags and recordsrn* Purchase orders and receiving sheetsrn* Requisition ordersrn* Time cards for hourly employees
Business documents to keep for six years:
* Accident reports and claimsrn* Accounts payable ledgersrn* Accounts receivable ledgersrn* Bank statements and reconciliation reportsrn* Cancelled stock and bond certificatesrn* Employment tax recordsrn* Expense analysis and expense distribution schedulesrn* Expired contracts, leasesrn* Inventories of products, materials, suppliesrn* Invoices to customersrn* Notes receivable ledgers and schedulesrn* Payroll records and summaries, including payment to pensionersrn* Plant cost ledgersrn* Purchasing department copies of purchase ordersrn* Sales recordsrn* Subsidiary ledgersrn* Time booksrn* Travel and entertainment recordsrn* Utility records (if tax related)
* Voucher register, schedulesrn* Vouchers for payments to vendors, employees, etc.
Business records to keep forever:
* Audit reports from CPAs and/or accountantsrn* Cancelled checks for important payments, especially tax paymentsrn* Cash books, chart of accountsrn* Contracts, leases currently in effectrn* Corporate documents (incorporation, charter, by-laws, etc.)
* Deedsrn* Depreciation schedulesrn* Documents of fixed asset additionsrn* Financial statements, year-endrn* General and private ledgers, year-end trial balancesrn* Insurance records, including current accident reports, claims and policiesrn* Investment trade confirmations and statementsrn* IRS revenue agents reportsrn* Journalsrn* Legal records, correspondence and other important mattersrn* Minute books of directors and stockholdersrn* Mortgages, bill of salern* Property appraisal prepared by outside appraisersrn* Property recordsrn* Retirement and pension recordsrn* Tax returns, worksheets and payment checksrn* Trademark and patent registrations
Personal documents:
For one year:
* You don’t need to save monthly and quarterly mutual fund and IRS contribution statements. You need to keep the year-end statements
For three years:
* Credit card statementsrn* Expired insurance policiesrn* Medical billsrn* Utility records
For six years:
* Accident reports and claimsrn* Medical bills (if tax related)
* Other tax related billsrn* Property records and improvement receiptsrn* Real estate – sold property records, contracts, receiptsrn* Sales receiptsrn* Supporting documents for tax returnsrn* Wage garnishments
To keep forever:
* CPA audit reportsrn* Important correspondencern* Income tax payment checksrn* Income tax returns and payment checksrn* Investment trade confirmations and statementsrn* Legal recordsrn* Retirement and pension records
Special circumstances:
* Car records (keep until the car is sold)
* Depreciation schedules and other capital asset records (keep for 3 years after the tax life of the asset)
* Insurance policies (keep for the life of the policy)
* Mortgages, deeds, leases (keep 6 years beyond the agreement)
* Pay stubs (keep until reconciled with your W2)
* Property records, improvement receipts (keep until property is sold)
* Sales receipts (keep for the life of the product warranty)
* Stock and bond records (keep for 6 years beyond selling)
* Warranties and instructions (keep for the life of the product)
So now you know what you need to keep and toss, can you scan those receipts and will an electronic copy be acceptable? The answer is yes. The IRS has accepted scanned receipts since 1997. The rule is Rev. Proc. 97-22 and states that your scanned or electronic records must be as accurate as your paper records. The IRS also states that you must be able to index, store, preserve, retrieve and reproduce the records – in so many words, they require you to have your records organized and be able to produce them in hard copy format if needed. So before you start scanning receipts, make sure you have a system in place and you back up your electronic records especially if you shred and destroy any original files or receipts.
Available Resources:
1. IRS.gov -
http://www.irs.gov/businesses/small/article/0%2C%2Cid=98513%2C00.htmlrn2. IRS Publication 583 – Starting a Business and Keeping Records:
http://www.irs.gov/publications/p583/index.htmlrn3. IRS Bulletin Rev. Proc. 97-22 -
http://www.irs.gov/pub/irs-irbs/irb97-13.pdf
* Most states with an income tax withholding requirement require employers to maintain employee records and have their own minimum retention period. Check with your state’s treasury department for their required retention period for employee related files.