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The Document Retention Guide to Tax Season – What to Keep and What to Shred

 

 

Tax season can be a stressful time, especially if you’re trying to determine which documents you should keep after tax season is over and which ones you can shred. Creating a records retention schedule for your personal tax files and business documents can make preparing for taxes easier in the future and can also safeguard you from identity theft.

 

It can be confusing to determine which records to keep and which to destroy. The IRS website lays out record retention guidelines for tax documents and financial information. Here are the record retention periods they suggest:
 

  1. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
     
  2. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
     
  3. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
     
  4. Keep records indefinitely if you do not file a return.
     
  5. Keep employment tax records for at least 4 years after the date that the taxes become due or are paid, whichever is later.
     
  6. Generally, 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.

Another general rule of thumb for tax document retention includes keeping pertinent information such as birth certificates, marriage licenses, divorce records, military papers, estate planning documents, life insurance records, and bank account information for an indefinite amount of time – or most likely forever.

 

Regarding business records, it makes sense to keep a final copy of your business’ tax returns and any communications with the IRS permanently. It’s okay to be conservative with your document retention and keep financial statements and general business ledgers permanently also - even though it’s not required.

 

Now that you know which documents you should keep, you can throw the rest away, right? Wrong! Documents with personally identifiable information, whether it’s tax records, bank statements, insurance information, etc…can leave you vulnerable to identity theft if they aren’t securely disposed of. Enlist the help of a professional document shredding service who can provide you with a Certificate of Destruction to ensure your confidential information doesn’t fall into the wrong hands.

 

More about document retention best practices:
 


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