Record Retention Guide

Another common question I get this time of year is, “How long do I have to keep all this tax stuff?”.  Several years ago, the Massachusetts Society of CPAs updated their record retention guide. The handbook isn’t authoritative guidance but it does provide good guideposts for how long you should keep records as an individual or business. If you have any specific questions regarding the information below, please feel free to reach out to me.

For individual Form 1040 taxpayers, the general guidance is to keep your tax records for seven years. As you may already know, the burden of proof is on the taxpayer, not the IRS, to support the numbers presented on the tax return.

The reason for this general rule of keeping your records for seven years is because the statute of limitations is six years, under certain circumstances, when the IRS can go back and audit you. For fraud and failure to file there is no statute of limitations, but in other circumstances, six years is the maximum amount of time the IRS is allowed to go back. Plus one year of cushion, since the start date is technically April 15^th of the following year when the tax return is usually filed, is why guidance suggests you keep records for seven years.

Some records like birth and death certificates, wills, trust agreements, life insurance policies, military papers, real estate purchase papers or details of major improvements to your home or other property should be kept permanently.

For businesses the rules are similar. Businesses must maintain books and records so that an accounting of the business activities may be performed whether it be for financial reporting purposes or tax returns. Investors and other stakeholders have certain rights to records. Specific industries may have different rules than the general guidance stated below.

Financial statements, balance sheets, income statements, trial balances, and chart of accounts should all be kept permanently. Bank statements and reconciliations, accounts receivable reports, accounts payable reports, credit card statements and other supporting documentation can be disposed of after seven years.  Details of fixed assets and any notes payable should be kept permanently.

In terms of payroll records, it is recommended that W-2 forms should be kept permanently but all other supporting documentation like time reports, payroll checks, medical and other benefits information, etc. can be disposed of after seven years.  Personnel files should be kept for seven years after an employee has left the company.

It is suggested that all corporate records be kept permanently. This includes articles of incorporation, bylaws, partnership agreements, shareholder meeting minutes, stock and bond records, patents, trademarks, and copyrights as well as any other important records.