If tax season has you swimming in paperwork, you may be wondering which documents you really need to keep and for how long. In fact, we receive this question a lot from our clients, so we decided to put together this comprehensive guide to clarify which documents you need to keep and how long you need to keep them. Keep reading to find out more.
Documents to Keep Forever
Some documents you will want to keep indefinitely. No matter what season of life you are in or how much time has passed since the documents were issued, you will always want to have them on hand. Here are the records you will want to hold on to forever:
- Birth certificates
- Death certificates
- Adoption papers
- Social security cards
- Marriage certificates
- Medical records
- Military records
- Wills and living wills
- Powers of attorney
- Retirement and pension records
- Education records
- Employment records
- Any documentation pertaining to the ownership or leasing of property or stock
- Any documentation pertaining to legal status, such as immigration visas, green cards, or proof of citizenship, and supporting documents
- Tax returns
Documents to Keep for a Minimum of Seven Years
Why seven years? It’s not an arbitrary number. Although the IRS statute of limitations for auditing is three years, there are circumstances that permit officials to go back as far as seven years to perform an audit, such as in cases where an individual underreports his or her annual income by 25% or more. Here are the documents, then, you will want to keep for at least seven years:
- Tax returns – Yes, we included them on the list of documents to keep forever because we encourage our clients to do so. However, you will want to keep your tax returns for a minimum of seven years.
- Supporting tax documentation – W-2 and 1099 forms, expense receipts, customer payments, payroll records, lender interest statements
Documents to Keep for a Minimum of Three Years
The documents listed below pertain specifically to your business financial records. You will want to keep for at least three years:
- Former supplier or customer contracts
Documents to Keep for a Minimum of One Year
These are the documents whose importance ceases after a year. The records you can dispose of after one year include:
- W-9’s for former contractors
- W-4’s for former employees
- Direct deposit information for former employees
- Receipts for large purchases, which may be needed to support your most current tax filings
How to Store Important Documents
You will want to store your important personal and business records in a safe place. Some people prefer paper storage while others use an electronic filing system. Either way is fine, as long as you take precautions to protect the integrity of your documents. Hard copies of important documents should be filed in a secure place, like a filing cabinet, or fireproof/waterproof home safe. Electronic copies of important documents should be stored in a password-protected digital file, on a hard drive or secure cloud-based storage system, for example. You will want to save multiple back-up copies of digital files, and you may want to consider having a paper copy of your most important documents, just in case.
Documents that you no longer need should be shredded to protect yourself from identity theft if they contain any personally identifiable information.
We hope this comprehensive guide helps to clarify which documents you need to keep for your records, and for how long. The Honest Buck Accounting team understands more than anyone the added stressors that tax season can bring. Helping you stay on top of financial record-keeping is only one of our areas of expertise. Schedule a call with us today to learn how our team of accountants can help you streamline your business finances at tax time and all year long!