You likely know that just because you’ve filed your taxes, that’s not to say you can toss your supporting documents into a shredder. Regardless as to whether you’re an individual or a business owner, the IRS has established guidelines for how long you should keep various types of records. According to these guidelines, the records that you hold onto should include anything that clearly shows your income and expenses. Below are just a few of the things you’ll want to keep in mind.
The length of time you need to keep records varies
According to the IRS, the length of time you should keep a document depends on the action, expense, or the event the document records. You must keep your records as long as needed to prove the income or deductions on a tax return. For example, accounting records, such as cash receipts and disbursement journals, AR and AP legers, billing files, time sheets, bank statements, tax returns, and time sheets should be retained for 7 years.
The retention guidelines for property records are a bit different. Per the IRS website:
You should keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.
If you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property.
The IRS also states that when it comes to personal income taxes, individuals should generally keep records relating to income, deductions, and credits until the period of limitations (i.e., the amount of time you’re permitted to amend your tax return to claim a credit or refund, or the time in which the IRS can audit your return and assess additional taxes, to run out.
In most cases, personal documents and records should be kept for 3-7 years after you file.
For more information about current document retention guidelines for businesses and individuals, call our office today to speak with an expert.