Expertise Beyond the Numbers

Records Retention: to Keep, or Not to Keep – That is the Question

Do I need to keep my old bank records? If so, for how long? How about my paystubs? My tax returns? And what about those receipts from my kitchen renovation?

As CPAs, we hear these questions – and others like them – a lot. Especially during tax time, as clients start sorting through their papers – and begin to feel overwhelmed by all the numbers. All of those statements and receipts need to be kept somewhere – and in some sort of order. And most people would rather avoid the unpleasant (and never-ending) shuffle of documents that “narrate” their lives.

Simplification is a great goal, but we need to be careful about simplifying too much. If we don’t keep the right documentation and find ourselves undergoing an IRS audit, we may regret that shredding party we had a few years ago.

So, what should you keep – and how long should you keep it? Assuming you’ve always been diligent about reporting all income – and taking allowable credits and deductions – you should keep your records related to those items for the later of three years from the date you filed your original return, or two years from the date you paid the tax.  That list of “need-to-keep” documents may include your W2, bank-and-brokerage 1099s, mortgage-interest statements and support for charitable deductions. And definitely don’t forget the actual tax returns themselves.

Records of your assets, including your house and stock portfolio, should be maintained for the duration of ownership plus three years (as outlined in the previous paragraph). If you acquired property in a like-kind exchange, be sure to keep the information related to the original property – as well as the exchanged property – for the required time.

And there are some documents you should just keep – indefinitely. These include wills and estate-planning documents, medical history, and documentation related to pension/retirement plans and social security benefits.  On the other hand, if you don’t have a valid tax basis for deducting utilities, phone bills, auto insurance and other similar ongoing expenses, a rolling one-year file of these bills is probably sufficient.  And it’s always a good idea to periodically review your “warranties” file to see if the warranty has expired or the covered item is no longer around.

All documents or records that you no longer need to keep should be shredded. Never assume someone won’t go through your trash and pick out documents that could help them steal your identity. Identity theft is a plague on our modern society; don’t help others who want to help themselves at your expense.

Items should be kept in a secure place, protected from the elements. Filing cabinets, a home safe, a bank safety deposit box and various forms of electronic storage are all good options, provided they are secure and you know where everything is.

If you underreported your income by at least 25 percent, you didn’t file previous tax returns, or you filed fraudulent returns, these general guidelines do not apply. If this is the case, or if you simply aren’t sure about a particular item, please consult your tax professional at SC&H Financial Advisors.

 

 

 

 

Advisory Services offered through SC&H Financial Advisors, Inc. SC&H Financial Advisors, Inc. is a wholly owned subsidiary of SC&H Group, Inc. 

These materials have been prepared by SC&H Financial Advisors for informational purposes and does not constitute or form part of, and should not be construed as, an offer to sell or issue, a solicitation of any offer to buy, or a recommendation with respect to, any securities and should not be relied upon as investment advice. The views expressed are subject to change.  Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Past performance is no guarantee of future results.

This communication is not intended to provide tax, legal, insurance or other professional advice.  It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor.  Any action taken based on information in this communication should be taken only after a detailed review of the specific facts, circumstances of your individual situation and current law. Please contact your advisor for further guidance.

Financial Planning + Wealth Management