Tips for Recordkeeping

Tax records should be kept year-round, not hastily assembled just for your annual tax appointment. But which records are important, and how and why do you keep them?

Without tax records, you can lose valuable deductions by forgetting to list expenses on your return or having unsubstantiated items disallowed it you're audited.

Generally, returns can be audited up to three years after filing. However, if income is under reported by 25% or more, the Internal Revenue Service can collect underpaid taxes up to six years later. In other words, you need good records to verify what you report on your tax returns.

Another money-saver: If your records are organized, your accountant will need less time to review your records. This may translate to lower tax preparation fees.

• Records of income received
• Expense items, especially work-related expenses
• Home improvements, sales and refinances
• Investment purchases and sales information
• The basis of inherited property
• Specific uses of loan proceeds
• Medical expenses
• Charitable contributions
• Interest and taxes paid
• Records on nondeductible IRA contributions

How should you keep your tax records?

Any way that is convenient for you that will allow you to give complete information on each item: How much? What for? When? Where? Why?

What to Keep and How Long?

Just how long you should keep records is partly a matter of judgment and a combination of state and federal statutes of limitations.

Federal returns can be audited for up to three years after filing (six years if underreported income is involved), so all records substantiating tax deductions should be kept at least that long.

Here are recommended retention periods for various records:

• Cancelled checks 7 years
• Bank deposit slips 7 years
• Bank statements 7 years
• Tax returns Permanent
• Employment tax returns 7 years
• Expense reports 7 years
• Entertainment records 7 years
• Financial statements Permanent
• Contracts Permanent
• Minutes of meetings Life of company plus 7 years
• Corporate stock records Permanent
• Employee records Period of employment plus 7 years
• Depreciation schedules Life of business plus 7 years
• Real estate records Permanent
• Journal & general ledger Life of business plus 7 years
• Inventory records 7 years
• Home improvement records Ownership period plus 7 years
• Investment records Ownership period plus 7 years

Make a list of your records and documents and then establish a written schedule for disposing of those you need not keep permanently. If you have any questions about any records or recordkeeping requirements, contact our office.