File cabinet filling up and you’re wondering which documents can be fed into the shredder?
Here’s a simple guide from our Seattle CPAs on how long to hold on to the most common financial records.
Tax returns should be kept for a minimum of 3 years but a maximum of 7. This is because the IRS can audit your return 3 to 7 years from your filing date if there is suspicion of good faith errors.
Be sure to include copies of all supporting documents related to your tax return.
- Accountability Services clients: Our firm retains electronic copies of your tax return for 7 years
Keep all pay stubs until the end of the year so that you can match the total to your W-2. 1099s should be retained with the corresponding tax return.
With online banking and paperless accounts, there is little need to hold on to paper bank statements in 2023 and beyond. Your bank should also automatically collect an electronic version of all the checks you write or deposit.
If in doubt, contact your bank to find out how long electronic records are retained.
Credit card statements
Similar to bank statements, it is unlikely you need to hold on to paper credit card statements provided that the bank issuing your card retains records for at least 3 years, or 7 years if you use the card for tax-related expenses.
Retirement plan statements
Unless your retirement plan provider specifically keeps permanent annual records on your behalf, it is a good idea to keep your annual summary statements indefinitely to be able to calculate your cost basis when retiring and selling investments within the account.
Brokerage statements should be kept for 3 years beyond the sale date of your securities.
It’s a good idea to hold on to your annual statement for 3 to 7 years but you do not need to retain monthly payment stubs.
For bills related to business expenses:
- Keep for 3 to 7 years, especially when the bill is for out-of-state vendors
- Hold on to utility bills if you claim a home office business deduction
For bills related to high-value purchases:
- Bills for major purchases should be kept indefinitely for proof of value in the event of damage or loss
If you sell a real estate asset, be sure to keep all records and receipts from the sale for 3 to 7 years.
If you operate a business of any size, make sure your accounting software saves electronic copies of all generated invoices for at least 3 years.
Organizing financial records for your business
For small to medium-sized enterprises, managing document storage is more complex. Here are best practices for keeping important documents in order.
- Monthly vendor bills – larger businesses should file by vendor name, smaller businesses may prefer to file by expense type
- Assets – keep the original filed under the vendor name and a copy filed by asset type
- Bank and loan statements – file by bank name, then by year, then by the purpose of the loan
- Leases – each lease should have a separate file
- Licenses – keep a copy of all relevant licenses in your Corporate Record Book, making sure to post all originals for which you are legally required to do so
- Tax notices and returns – fle by type and then by year
- Certificate of Formation, Articles of Incorporation, Federal EIN – Corporate Record Book
- Employment security number and L&I/unemployment number – keep in your payroll file
The importance of keeping records for strategic tax planning
Our team believes a tax return should be the result of strategic planning, and never a surprise. To best analyze the data we need to develop a proactive plan, be sure to keep all current-year financial documents organized and up to date.
Start your journey to tax efficiency by requesting a free consultation with our team here: online contact form.