We frequently get asked how long our individual and business clients should keep their records and copies of tax returns. Here is our advice:
Most of the time our individual clients ask us which records are important. Here is a list of the most common records you need to keep:
- Records of income received
- Expense items, especially work-related expenses
- Home improvement, sales, and refinances
- Investment purchases and sales information
- The tax basis of gifted and inherited property
- Specific uses of loan proceeds
- Significant, unreimbursed medical expenses
- Charitable contributions
- Interest and taxes paid
- Records of nondeductible IRA contributions
The tax law requires all businesses to keep records to support the gross income, deductions, and credits claimed on their income tax returns.
All businesses should have a permanent set of books which summarize individual deposits, disbursements, and items of adjustment. These records should be retained indefinitely. Permanent records also include those needed to prove the basis (cost) of depreciable assets.
Additionally, supporting documents may be needed to validate the journal entries if your returns are examined by the IRS. The general rule is that supporting documents should be retained at least until the statute of limitations for a tax year have passed.
Our recommended retention periods are:
- 7 years for: bank deposit slips, bank statements, cancelled or substitute checks, credit card receipts, employment tax returns, expense records, inventory records, paid invoices and tax returns
- Contracts, corporate stock records, and financial statements should be permanent records of the business.
- Depreciation schedules should be kept for the life of the asset plus 7 years
- Employee records should be kept for the period of employment plus 7 years
- Investment records should be kept for the ownership period plus 7 years
- Journal and general ledger documents should be kept for the life of the business plus 7 years
- Minutes of meetings should be kept for the life of the company plus 7 years
- Real estate records should be kept for the ownership period plus 7 years
- Home purchase and improvement records should be kept for the ownership period plus 7 years
For more information on record retaining, contact one of our staff members today.