by Penny Fox –
I get asked this question on practically a daily basis. So – here it is. According to the Internal Revenue Service, “The length of time you should keep a document depends on the action, expense, or event for which the document records. Generally, you must keep records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.” For tax purposes, that period is generally three years after you file the return, when you have the right to amend the return to claim a refund or a credit, and IRS has the right to assess tax. Note the California Franchise Tax Board statute of limitations for auditing you is four years.
Tax returns should be maintained indefinitely, but the documentation supporting the information on the return will vary.
If you own properties or investments, keep the documents supporting the purchase price and/or improvements, along with depreciation calculations, until you sell the asset in a fully taxable transaction, plus seven years. These documents include real estate closing statements, mortgage documents, deeds, and broker statements for investment activities.
Keep business records generally for seven years— the length of statute of limitations for filing lawsuits.
- Corporate stock records, minutes of meetings of the board of directors and stockholders, and accountant prepared financial statements should be kept indefinitely.
- Internally prepared annual financial statements and summaries of transactions should be maintained, but customer and vendor invoice details can go after seven years.
- Leases and other contracts should be held for seven years after their expiration.
- Payroll records and summaries as well as payroll related taxes, should be kept for seven years.
- Employee personnel records should be maintained for seven years after termination.
Save space; scan your important documents and file them in a digital format. Be very careful to have a reliable backup, preferably online. Online banking saves paper, too, but banks often provide access for your transactions for only a limited time. Check with your financial institution for information on their retrieval options.
Penny M. Fox, CPA specializes in tax and accounting services, including tax planning and tax return preparation, bookkeeping, retirement planning, business consulting, estate planning, trust consulting, divorce planning and bankruptcy planning.