As we dive into gathering documents for this year’s tax prep, now is the perfect time to re-organize your business and/or personal files. Below are some ‘general’ record retention guidelines to help you sort through your piles of papers. The IRS requires every taxpayer to keep adequate records and make them available upon request. If you fail to keep adequate records, the IRS may disallow deductions and access a penalty so sort wisely!

While purging, keep in mind identifying information can often be found on those accounting and legal documents you will want to discard, such as name, birth date, address and social security numbers. Any confidential or personal items you plan to toss should be SHREDDED to safeguard your privacy and identity.

Organization is Key

First, take a records inventory and place items in broad categories (for example: operations, accounting, tax, and legal). Then each year moving forward you can apply documents in the categories consistently. By taking the time now to index and archive documents, you won’t need to guess which of the 10 boxes has the one document you are looking  for in the future. Especially because we all know it will be in the last box you look! Again, make sure to SHRED all documents that exceed your retention policy.

The following general guidelines can help you develop your own retention timeline policy.

For Your Business

Keep indefinitely:

• Annual financial statements
• Incorporation
• Bylaws and minutes
• Stock records
• Licenses/patents/trademarks
• Legal records
• Tax returns (recommended at least seven years)
• Year-end trial balances
• Canceled checks for fixed asset purchases
• Deeds, mortgages, bill of sale, titles
• Depreciation schedules

Keep seven years:

• Bank statement and reconciliations
• Cancelled checks (keep indefinitely for tax payments, purchase of property, special contracts, etc.)
• Accounts payable and receivable ledgers and schedules
• Sales records
• Electronic payment records
• Employee expense reports and timecards
• Subsidiary ledgers
• Payroll journals

Keep three years:

• Employee personnel records after termination
• General correspondence

For Yourself

Keep indefinitely:

• Marriage certificates, death certificates, divorce papers, etc.
• Deeds, mortgages, titles, property appraisals
• Personal health records
• Legal records
• Tax returns and support (recommended at least 7 years)
• Receipts for big-ticket items (i.e. jewelry, appliances, furniture, automobiles) – keep in an insurance folder for  proof of their value in case of loss or damage
• Retirement and Savings Plans (keep annual summary/toss quarterlies if match up to annual)
• W2’s (keep to reconcile to your social security record)

Keep ten years:

• Home repair bills and contracts (for warranties/guarantees)
• Home insurance policies

Keep seven years:

• 1098’s and 1099’s received
• Bank statements
• Canceled checks

Other Items

• ATM and deposit slip (keep until reconciled on your bank statement)
• Credit card receipts (keep until reconciled on your credit card statement)
• Pay stubs (keep until reconciled with your W-2)
• Car records (keep until car is sold)
• Brokerage statements (keep until you sell the security)
• Insurance policies (keep for life of policy)
• Warranties and instructions (keep for life of product)
• Utility bills (keep 3 months unless you can’t write off)
• Property records/builder contracts/improvement receipts (keep until property is sold)

If you need additional help deciding which records to keep and which to toss, give us a call at (630) 953- 4900.