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Record Retention – “How long do I have to save all of this paperwork?”

Posted by: Nick L. in Tips

How long do I have to save all of this paperwork?

This is one of the most common questions people ask their accountants and financial professionals. It seems that nearly everyone has a box or a drawer of papers that they are not sure what they should do about. Over the years these documents can really add up and before you know it decades can pass. You may even find yourself helping an elderly parent or friend who has a lifetime worth of paperwork saved. One look at that pile is bound to leave you overwhelmed.

What should I do with all this paperwork?

Well, it really depends on what the paperwork is.  The good news is that in most cases, you can likely dispose of at least some of it.

Here are some general guidelines for saving documents.  Whether the documents are personal information, for business, tax reporting or legal documents, there are different recommendations for the length of time you need to save each of these.

 

Record Keeping for Individuals:

In general, different items are saved for 1 to 7 years, but some should be saved indefinitely.   Personal documents, such as personal bank account statements can be kept for 1 year and then securely disposed of. The same applies to your investment statements. Since 2011, cost basis (the price paid for an investment) has been tracked by investment firms. This makes it easy to find this information if you need it in the future. Before getting rid of any information documenting cost basis, you should check with your Financial Advisor or Tax Preparer.  The same would apply to documents related to cost of real estate or other assets. If in doubt, keep it as it can be difficult to recreate this information.

Personal Tax Returns should be saved for at least 3 years.  The IRS has 3 years from the filing date to initiate an audit of your return, so you want to have the tax return along with all the documents that support income and deduction items reported on that return.  If you filed your return before the due date, then the IRS will use the due date to start the 3-year clock (typically April 15th).  State tax returns can have different statute of limitations, so check with your state to see if that document retention period is different from the IRS.

Personal legal documents including documents such as Deeds, Birth/Death Certificates and Stock Certificates should be kept forever.

 

Record Keeping for Business Owners:

When you own a business, it is important to save information for a bit longer.  Most business income and expense documents should be saved for at least 7 years.  This will include bank statements and reconciliations, employment tax records and timecards, invoices for both customers and vendors along with inventories.   Business legal documents that should be kept permanently would include things such as Corporate Minute Books, Business Registrations and Patent/Trademark information. 

 

A Note on Digital Recordkeeping

You can always save these documents in paper form, but you could also save most of these items electronically. This can also work well for items such as photographs and home video. While you may be tempted to just upload everything to a flash drive, consider solutions that provide regular backups, a plan for emergency recovery and encryption.

It can be truly overwhelming to weed through your personal records due to the many considerations and recommendations for lengths of time. If you are purging documents, be sure to dispose of them in a secure manner such as shredding. Be sure to keep the documents that you may need in the future. Protect important documents in fireproof safes or in safe deposit boxes. If you are unclear, be sure to ask a professional before disposing of documents and always err on the side of keeping things for longer.

Melanie Chapel

Investment Advisor Representative 


Melanie has been part of the Advisors Management Group team since 2008. She has over 23 years of tax and accounting experience and enjoys working with clients to help them better manage their businesses.

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