A handy reference tool to keep your files in shape.

Retention Guide

Record Retention and the Burden of Proof

Why it is important


The responsibility to substantiate income, deductions, basis, and other items reported on your tax returns is known as the ‘burden of proof.’ You must be able to verify expenses to deduct them. Generally, taxpayers meet their burden of proof by having the receipts for and details of the expenses. You should keep adequate records to provide evidence to support your statements. Documentary evidence includes receipts, canceled checks, or bills. Additional details are required for travel, entertainment, gifts, and auto expenses. The information below reflects the statute of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the later of when the return was filed or its original due date (returns filed before the due date are treated as filed on the due date).

Keep it or Toss it?

Nontax Purposes

When your records are no longer needed for tax purposes, do not discard them until you check to see if you should keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.

What to shred:

• Duplicates of receipts.

• Records that are unrelated to deductions and credits not claimed. One of the biggest offenders? Medical receipts when you don't claim the medical expenses deduction. You don't need to keep those receipts for tax purposes (however, you may need them for other reasons).

• Old tax returns. Some tax professionals recommend that you never throw out your old tax returns - even when the statute of limitations has already run - as proof that you have filed. Have a discussion with your tax professional to assess if your situation necessitates keeping returns longer than the suggested retention period.

• Paystubs. Check your paycheck stubs against your year-end statements, including you form W-2 and your annual Social Security statement. Make sure that they properly reflect your income, pre-tax deductions, employee benefits, etc. Once you've confirmed that they're correct, you do not need to save the stubs.

• Old records. If the statute of limitations has run, you can usually destroy tax-related records keeping in mind the above guidelines.Bear in mind, if records aren't needed for tax reasons, you may need them for other reasons.  Safe. Secure. Offsite. Why a safe deposit box could be your best friend.A safe deposit box - usually located inside a bank - is used to store valuables. A safe deposit box is rented from the institution and can be accessed with keys, pin numbers or some other security passwords. Customers rely on the security of the building to protect the valuables placed inside. Keep in mind, only YOU can access your safe deposit box or those who you designate to be accompanied with you.Safe deposit boxes are the best places to keep items that are valuable. This includes jewelry, cash, stamp and coin collections and negotiable instruments like stock certificates and bonds. They are also good places to keep items that are not replaceable or that have sentimental value. A household inventory (videotaped or written), appraisals, listings of insurance policies, and credit card numbers should also be kept in a safe deposit box. Keep in mind, you do not want to put items that you need very frequently or at a moment’s notice.Examples of items of value:• Coin and stamp collections

• Negotiable investment instruments like bond and stock certificates

• JewelryExamples of items that are not easily replaced:

• Family heirlooms

• Photos

• Historical records

• Adoption papers

• Birth certificates

• Citizenship papers

• Military documents

• Divorce papers

Safe. Secure. At Home.

What not to keep in your safe deposit boxIt is important to remember that only you can open your safe deposit box without a court order. Items that others may need to obtain if you are not present should not be kept in your box. Use your safe deposit box regularly and keep a list of what it contains. Do not store cash in your safe deposit box. Original wills, powers of attorney, living trust documents, and other trust documents should not be in your safe deposit box. Insurance policies should be accessible and not kept in the box. We recommend these documents be scanned.What to keep in your in-home fireboxItems that should be safe but readily available:

• Vital back up data files from your PC, stored on a jump drive

• Passports

• Important contracts and business agreements

• Real estate deeds and mortgages

• Confidential records

• Copies of important financial records that you keep at home

• Copies of wills, living trust documents, powers of attorneys

Proof of Business Expenses

IF you have expenses for:

THEN you must keep records that show details of the following elements: Amount Date Place or Description Business Purpose and Business RelationshipTravel Cost of each separate expense for travel, lodging and meals. lncidental expenses may be totaled in reasonable categories such as taxis, daily meals for traveler, etc. Dates you left and returned for each trip and number of days spent on business Destination or area of you travel (name of city, town, or other designation). Purpose: Business purpose for the expense of the business benefit gained or expected to be gained.Entertainment Cost of each Date Name and Purpose: Business purpose separate expense. address of for the expense of the business Incidental expense location of place benefit gained or expected to such as taxis, of entertainment. be gained. telephones, etc., Type of entertain- For entertainment, the nature may be totaled on ment if not of the business discussion or a daily basis. otherwise apparactivity. If the entertainment ent. was directly before or after a business discussion: the date,(NOTE:  Not deductible beginning in 2018) place, nature, and duration of the business discussion and the identities of the persons who took part in both the business discussion and the entertainment. Relationship: Occupations or other information (such as names, titles, or other designa- tions) about the recipients that shows their business relation- ship to you. For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.Transportation Cost of each Date Your business Purpose: Business purpose for expense. destination. the expense. For car expense, the cost of the car and any improve- ment, the date you started using it for business, the mileage for each business use and the total miles for the year.

UNDERSTANDING THE STATUTES OF LIMITATIONS THAT APPLY TO INCOME TAX RETURNS

Keep records for:
• 3 years for Federal return and 4 years for California.• 7 years if you file a claim for a loss from worthless securities or bad debt deduction. • 6 years if you failed to report income that you should report, and the omitted income is more than 25% of the gross income shown on your original return. If you don't report all income that you should report, the statute of limitations is extended: you'll need to keep those records for at least six years. • FOREVER if you do not file a return or if you file a fraudulent return. There is no time limit for IRS action in these cases.  • If you are a business owner, keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.• If you make nondeductible contributions to a traditional IRA, hold onto those records until you make a complete withdrawal/distribution (the account balance is zero). You do not want to pay tax on those contributions twice. But don't stop there! You should hold onto all IRA records - including Roth contributions - until you withdraw all the money from the account.• If you claim depreciation, amortization, or depletion deductions, keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records including improvements.• If you claim special deductions and credits, you may need to keep your records longer than normal.  For example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for 7 years.• If you have employees, including household employees, keep your employment tax records for at least 4 years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.• If you are in a partnership or an S corporation shareholder, the statute of limitations is generally controlled by the date of your individual return.• If you file an amended return, it does not extend the statute of limitations for your original return. The clock does not restart for the portion of the return you are not amending, only the portion of the return that was amended. The original filing date determines the statute of limitations (some exceptions apply if you file within 60 days of the assessment window).• Note: Supporting documentation for tax returns includes Forms W-2 and 1099 as well as bills; credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks; proofs of payment; and other records to support deductions or credits claimed on your return.Keep it or Toss it? Real Estate and ImprovementsKeep records relating to property until the statute of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.• If you received property in a tax-free exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property.• If you own property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you'll need to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years. That means, for example, that you should keep records related to your home, including home improvements, for as long as you own the house. Remember, you're entitled to exclude up to $250,000 of gain on the sale of your home ($500,000 if married filing jointly) - so keep excellent records of the cost of the home as well as any improvements or other adjustments to basis.• If you receive real estate or other property as the result of a gift or inheritance, you'll want to keep records that support your cost basis. Generally, if you inherit property, your basis is the stepped-up value as of the date of death; if you receive a gift, your tax basis is the same as the donor's basis. Don't toss those old records just because you're the new owner of the assets. 

The suggested retention periods below are offered only as a guide rather than the "final authority". Generally, you must keep any records that support an item of income, deduction or credit shown on your tax return until the retention period for that tax return ends.

Key Business Documents

6 Years

  • Contracts
  • Business Licensess
  • General Correspondence
  • Production Correspondence
  • Mortgages and Note Agreements

Forever

  • Deeds
  • Patents
Financial Documents

2 Years

  • Budgets

4 Years

  • Bank deposit slips, reconciliations, statements and cancelled checks
  • Bills of lading
  • Contracts -  purchase and sales
  • Credit memos

6 Years

  • Employee Payroll Records (W2, W-4, annual earnings records, etc.)
  • Subsidiary Ledgers (accounts receivable, accounts payable, etc.)

7 Years

  • Worthless Securities

Forever

  • Auditors' Reports
  • Annual Financial Statements
  • General Ledger
  • General, cash receipts, cash disbursement, and purchase journals

The suggested retention periods below are offered only as a guide rather than the "final authority". Generally, you must keep any records that support an item of income, deduction or credit shown on your tax return until the retention period for that tax return ends.

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Maecenas nec odio et ante tincidunt tempus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Cras non dolor.

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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero.

Ut non enim eleifend

Duis vel nibh at velit scelerisque suscipit. Cum sociis natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus. Ut tincidunt tincidunt erat. Cras non dolor.

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Praesent metus tellus, elementum eu, semper a, adipiscing nec, purus. Aenean vulputate eleifend tellus. Nam ipsum risus, rutrum vitae, vestibulum eu, molestie vel, lacus.

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Maecenas nec odio et ante tincidunt tempus. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Cras non dolor.

Maecenas nec odio

Aenean imperdiet. Cras ultricies mi eu turpis hendrerit fringilla. Phasellus leo dolor, tempus non, auctor et, hendrerit quis, nisi.

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Maecenas malesuada. Nunc interdum lacus sit amet orci. Praesent congue erat at massa.