Paperwork ~ how long should I keep it?

My clients often ask how long they should keep their paperwork so I thought it would be helpful to share this information in my Blog.*  I will break it down into two parts. 

Part A - Personal Paperwork Timeline
Part B - Business Paperwork Timeline

PART A - PERSONAL PAPERWORK TIMELINE
SOURCE USED:  Bankrate.com

TAXES - 7 years
(Returns, canceled checks, receipts and other back-up documents used for tax calculation purposes)

• The IRS has three years from your filing date to audit your return if it suspects good-faith errors.  The three year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund.
  
• The IRS has six years to challenge your return if it thinks you underreported your gross income by 25% or more.
  
• There is no time limit if you failed to file your return or filed a fraudulent return.
  

IRA CONTRIBURION RECORDS - Permanently

• If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
  

RETIREMENT / SAVINGS PLAN STATEMENTS - From 1 year to permanently

• Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then shred the quarterlies.  Keep the annual summaries until you retire or close the account.
  

BANK RECORDS - From 1 year to permanently

• Keep checks related to your taxes, business expenses, home improvements and mortgage payments.  (I suggest keeping separate files for paperwork related to home improvements or car maintenance so it will help justify the value if you decide to sell.)
  

BROKERAGE STATEMENTS - Until you sell the securities

• You need the purchase or sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses.
  

BILLS - From 1 year to permanently

• Bills for big purchases such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. should be kept for proof of their value in the event of loss or damage.
• If not kept for business or rental property write offs, other bills such as garbage, utilities, internet, phone, newspaper, etc. can be shred once the check has cleared.

CREDIT CARD RECEIPTS AND STATEMENTS - From 45 days to 7 years

• Keep your original receipts until you get your monthly statement, shred the receipts if the two match up.
• Keep the statements for 7 years if tax related expenses are documented.

PAYCHECK STUBS - 1 year

• When you receive your annual W-2 form from your employer, make sure the information on your stubs matches.  If it does, shred the stubs.  If it doesn’t, ask for a corrected form, known as a W-2c.
  

HOUSE/CONDOMINIUM RECORDS - From 6 years to permanently

• Keep all records documenting the purchase price and the cost of all permanent improvements such as remodeling, additions and installations.  
• Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for 6 years after you sell your home.  Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis.  This adds up to a greater profit (also known as capital gains) when you sell your house.  Therefore, you lower your capital gains tax!

PART B - BUSINESS PAPERWORK TIMELINE
SOURCES USED: Rocketlawyer.com, IRS

• If you owe additional taxes, keep records for 3 years
  
• If you do not report income that should have been reported, and it exceeds 25% of the gross income on your return, keep records for 6 years
• If you file a fraudulent return, keep records indefinitely
• If you do not file a return, keep records indefinitely
• If you file a claim for credit or refund after filing your return, keep records for 3 years from the filing of the original return
• If you file a claim for a loss due to bad debt deduction or worthless securities, keep records for 7 years
• Keep all employment records for at least 4 years after the tax is due or paid

 Some business records should be kept permanently:

•  Audit reports and charts of accounts
• Canceled checks for important payments
• Records of capital stocks and bonds
• Cash books
• Contracts and leases still in effect
• Legal correspondence
• Deeds, mortgages, bills of sale
• End of year financial statements
• Insurance records
• Minutes, bylaws and charters
• Property appraisals and records
• State and federal income tax returns
• Trademark registrations

Other records are commonly kept only up to seven years:

• Accident reports and claims
• Ledgers and schedules for accounts payable and receivable
• Bank statements
• Most canceled checks
• Expired contracts and leases
• Product, material and supply inventory
• Customer and vendor invoices
• Ledger and schedules for notes receivable
• Option records
• Payroll account records
• Purchase orders
• Sales records
• Canceled stock and bond certificates
• Vouchers

*NOTE:  It is always a good idea to check with your CPA as well.