We often receive questions about how long
certain financial records should be retained.
The IRS, through Publication
552, offers some guidance with regard to record keeping for
individuals. Their recommendations are
based on the following deadlines:
- The
IRS has 3 years from your filing date to audit your return if it
suspects good faith errors. This
deadline also applies if you discover a mistake with your return and decide to
file an amended return.
- The
IRS has 6 years to challenge your return if it suspects that you under reported your gross income by 25% or more.
- There
is no time limit if you failed to file your return or filed a
fraudulent return.
- With the IRS limitations in mind, here are
some general guidelines that can help you confidently shred those useless
financial records.
Tax Records
We recommend that you permanently retain your
actual tax return. However, many of your
supporting documents including canceled checks, receipts, etc. can be shredded
if they are older than 7 years. It’s
time to shred your pre-2002 supporting documents!
401(k) Statements
Maintain your quarterly statements until you
receive an annual summary. If the
quarterly statements reconcile with the annual summary, shred the quarterly
statements. Confirm that the annual
statement matches the deferrals listed on your W-2 form. Retain the annual summary until the account
is depleted or transferred. Permanently
retain the final statement to provide a paper trail that the account was
depleted.
Bank Records
Upon reconciling your bank statement you can
immediately shred the returned checks that are of no importance. Retain the checks (or the statement) that
will be used as support in completing your tax return. There is rarely a need to ever retain bank
statements, returned checks, carbon copies or your check register for longer
than 7 years.
Brokerage Statements and Trade
Confirmations
Brokerage statements and trade confirmations are
used to determine your investment gain or loss on a particular stock or mutual
fund. These records should be retained
for seven years after the sell of the investment.
Household Bills
In most cases, household bills can be shredded
when proof of payment is received. You
may choose to retain old bills for one year to help with household
budgeting.
Credit Card Bills and Receipts
On a monthly basis, you should reconcile your
credit card receipts with your monthly statement. When the two match up, you can shred most
receipts. File your receipts for
deductible expenses in your current year tax file.
Paycheck Stubs
Retain your paycheck stubs until you reconcile
them with your current year W-2 statement.
If everything reconciles, your pay stubs can be shredded.
House Records
Permanently retain all closing and settlement
statements to your home. Retain the
records that document the costs of permanent improvements (additions,
remodeling, etc.) for seven years after you sell your house.
Please feel free to contact our office if you have any specific questions
regarding your household files.