Clients frequently ask us how long they need to hold onto old financial documents. Maintaining complete and accurate records is the first step in monitoring your business and preparing accurate financial statements and tax returns. Paper records are cumbersome and take up storage space, sometimes even necessitating the payment of offsite storage fees. Paperless storage requires the purchase of sufficient memory to accommodate what is being stored, and someone has to scan all those paper documents. All of this can be expensive, so knowing what to keep and how long to keep it can save you money.
From a tax perspective, the most important reason to retain documents is that they provide substantiation in case of an audit. If your return is selected for an audit, you must be able to substantiate all your deductions. Retaining receipts, cancelled checks (or bank statements with copies of the checks), contemporaneous logs, and forms 1099, 1098, and w-2 in a file or envelope together with your tax return will simplify your preparations should you ever be audited.
Knowing what to keep and how long you should keep it is only part of the equation. If you have a business, we recommend that you establish a policy that specifies how long you will keep each type of document and then adhere to your policy. Should you ever become involved in legal proceedings, a defined disposal policy properly followed can preclude a fishing expedition through ancient records or prevent accusations of selective disposal. (Of course, should you become aware of legal proceedings, you should not dispose of anything without first consulting with your legal counsel.)
We have provided a guide for suggested retention periods for various business and personal documents.
If you have any questions, please contact us.