How long should I keep tax records?
RECORD RETENTION GUIDELINES
| Records |
Retention
Periods |
| Audit reports |
Permanent |
|
Bank deposit slips |
6 years
1 |
|
Bank statements |
6 years 1 |
|
Canceled checks |
3 years 1 |
|
Certificates of insurance |
Period of coverage, plus 3 years |
|
Contracts and leases |
Permanent |
|
Corporate stock records |
Permanent |
|
Daily sales records |
3 years
1 |
|
Depreciation schedules |
Life of asset, plus 3 years |
|
Employee records |
Period of employment, plus 3 years |
|
Employee time cards |
3 years
1 |
|
Entertainment records |
6 years 1 |
|
Expense reports |
6 years
1 |
|
Financial statements |
Permanent |
|
General ledger and journals |
Permanent |
|
Insurance claims |
3 to 5 years after settlement |
|
Insurance policies |
Permanent |
|
Inventory records |
3 years 1 |
|
Loss reports |
5 years
1 |
|
Minutes of meetings |
Life of company |
|
Paid vendor invoices |
3 years
1 |
|
Real estate records |
Permanent |
|
Tax returns and supporting documentation |
Permanent |
|
Tax and legal correspondence
|
Permanent |
1 From tax return due date or filing date,
plus any amended returns, whichever is later.
General
Retention Periods
The IRS generally has up to
three years after the original due date of your return (or the date the
return is filed, if later) to assess additional tax. Thus, if you filed your
1997 individual federal income-tax return on or before the April 15, 1998
deadline, the IRS generally has until April 15, 2001 to assess a tax
deficiency against you. If you file your return after the original due date
of April 15, the start of the three-year time frame shifts to the date you
filed the return.
This does not mean you
should dispose of your tax records after the three-year period is up.
Instead, copies of your tax return and other evidence that you filed a tax
return for each year should be retained indefinitely. Why? Because if you
fail to prove you filed a tax return for a particular year, the IRS can
assess tax for that year at any time in the future.
However, from a practical
standpoint, retaining the details of each tax return for six years after the
return is filed should be adequate, since the IRS may extend the three-year
assessment
period to six years if more than 25% of your income in a particular tax year
was omitted from your return.
Property
Transactions
Records of the cost of
property you purchase and will likely sell in the future (including
investments) should be kept for at least six years after the tax year the
property is sold (not just six years after the date of purchase). The
reason: These records may be needed to substantiate your adjusted tax cost
basis in the property. For
example, let's say you purchased a commercial building in 1980, made
significant capital improvements in 1987, and sold the building in 1998. If
your 1998 tax return is audited, you may have to produce records evidencing
the cost of the purchase in 1980, and the amounts spent on capital
improvements in 1987, to be able to substantiate the property's adjusted tax
cost basis used in calculating a gain or loss on the 1998 sale.
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