Are your files overflowing with nonessential documents? Instead of keeping paperwork “just in case,” ask “Why do I need to keep this?” Documents that can be easily duplicated can usually be eliminated ( if you bank online and can view or print copies of your monthly statements and cleared checks, you may not need paper copies of the same information).
A good rule of thumb is to keep financial records only as long as necessary. There is some dispute between those in the financial arena as to how long records should be kept. The IRS suggests keeping the records until the period of limitations runs out (the period of time you can claim a refund or the IRS can assess additional tax.) If you didn’t file a return for a specific year, the records should be kept indefinitely.
Records that you may want to keep for multiple years include:
- Supporting documentation for returns (keep at least 3 years from the date filed)
- Employment Tax Records (keep at least 4 years from the date tax was due or filed)
- Receipts for business assets (keep at least 4 years after the date of disposal)
- Human Resources Files (check the length of time required for each type of document)
- Inventory records
- Property Tax Returns
- Sales & Use Tax Returns (at least 3 years from the date filed)
- Commission Records for Outside Sales Representatives
- Loan documents (original document and final statement showing paid in full)
Records that you may want to keep indefinitely include:
- Audit reports by CPAs
- Income Tax Returns
- Year-End Financial Statements
My recommendation is to scan and save all your documents in folders to avoid having to maintain physical paperwork for long periods of time. If you choose this method, make sure you save backup copies in the event your computer crashes, or store with an online application that can be accessed from multiple devices.
Maintaining your documentation in the event of an audit is important, but don’t keep paperwork you no longer need.