How Long to Keep Important Documents

If tax season has you swimming in paperwork, you may be wondering how long to keep tax records and other important documents. We get this question often from our childcare and small-business clients, so we put together this guide to clarify which documents you need to keep, and for how long. Keep reading for the full breakdown.

How Long to Keep Tax Records and Other Important Documents

Not every document deserves a forever spot in your filing cabinet. Some you should never throw away. Others can go in the shredder after a year. Below, we break it down by retention period so you know exactly what to do.

Documents to Keep Forever

Some records you should keep indefinitely. No matter what season of life you are in or how much time has passed, you will always want them on hand. Here are the records 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
• Passports
• Retirement and pension records
• Education records
• Employment records
• Any documentation related to the ownership or leasing of property or stock
• Any documentation related to legal status, such as immigration visas, green cards, proof of citizenship, and supporting documents
• Tax returns

If you ever lose one of these and need a replacement, the Social Security Administration and the federal agency that issued the original are your first stop. As a result, even if a hard copy is destroyed, you can recover most “forever” records — but the process is slow, so guard them well.

Documents to Keep for a Minimum of Seven Years

Why seven years? It is not arbitrary. The IRS statute of limitations for a standard audit is three years. However, the IRS can go back six years if you omit more than 25% of your gross income, and there is no time limit if you never file a return or if fraud is involved. The full rules are spelled out in the IRS guide on how long to keep records. As a result, seven years is a safe, common-sense buffer.

Here are the documents to keep for at least seven years:

• Tax returns — Yes, we listed them as “keep forever” above because we encourage clients to do exactly that. However, seven years is the bare minimum.
• Supporting tax documentation — W-2 and 1099 forms, expense receipts, customer payments, payroll records, and lender interest statements. The IRS covers these in Tax Topic 305: Recordkeeping.

Documents to Keep for a Minimum of Three Years

The records below relate specifically to your business operations. Keep them for at least three years:

• Former supplier and vendor contracts
• Former customer or family enrollment contracts
• Insurance policy documents after they have lapsed

Documents to Keep for a Minimum of One Year

Finally, some documents matter only for a short window. The records you can shred after one year include:

• W-9s for former contractors
• W-4s for former employees
• Direct deposit information for former employees
• Receipts for large purchases (keep until they no longer support your most recent tax filings)

How to Store Important Documents

Now that you know how long to keep tax records and other documents, store them well. Some people prefer paper storage; others use an electronic filing system. Either approach works, as long as you take precautions to protect the integrity of your records.

For hard copies, file them in a secure place such as a locked filing cabinet or a fireproof and waterproof home safe. For digital copies, store them in a password-protected folder, on an encrypted hard drive, or in a secure cloud service. In addition, keep multiple backup copies of your digital files. For your most critical documents, a paper copy in a separate location is a smart extra layer.

Meanwhile, documents you no longer need should be shredded — not just tossed — to protect yourself from identity theft. The FTC’s guidance on identity theft protection is a good reminder of how easily discarded paperwork can be misused.

Stay on Top of Tax Record Retention All Year Long

We hope this guide clarifies how long to keep tax records and the rest of your important paperwork. The Honest Buck Accounting team understands the stress tax season brings, especially for childcare business owners juggling enrollment, payroll, and parent communication. Helping you stay on top of financial recordkeeping is only one of our specialties. For more on building a sustainable system, our guides to small business bookkeeping basics and tax season tips for childcare owners are worth a read. Schedule a call with us today to learn how our team can streamline your business finances at tax time and all year long.