Record Retention Guidelines: What to Keep and When to Dispose

Published by Heather on

Record Retention Guidelines:
What to Keep and When to Dispose

The length of time you should retain records can vary depending on a range of factors. Here are some general guidelines that may assist in deciding when it’s appropriate to dispose of important documents:

  • Tax Returns: Maintain tax returns for a minimum of seven years.  Three years is typically the period during which the IRS can review your return, assess additional taxes, or process refund requests. Extensions apply in cases of omitted income or fraud which could result in an additional years being subjected to scrutiny.
  • State Tax Returns: Keep in mind that state tax return retention periods may differ, so it’s essential to check your state’s specific requirements.
  • Real Estate Records: Retain records establishing the adjusted basis of real estate, including settlement sheets for property purchases and receipts/invoices for property improvements. Hold onto these records for at least three years after selling the property. Property held for a long period of time can result in many years of retained records.
  • Securities Transactions: Preserve purchase documents for taxable mutual funds, stocks, and similar investments, along with records of stock splits, dividend reinvestments, and nontaxable distributions.  Brokerages or account custodians tend to have these records but not always.
  • Retirement Accounts: For IRAs and 401(k)s, keep records until three years after the accounts are depleted. Remember to file Form 8606 for nondeductible IRA contributions and keep copies of Form 8606 and your 1040s for the relevant years. Additionally, retain Form 5498 or similar statements reflecting IRA payouts.
  • Inherited or Gifted Property: Keep documentation of date-of-death value for inheritances and donor’s cost for gifts until three years after selling the asset.
  • Business Records: Businesses should maintain payroll tax records for a minimum of four years after the due date for filing Form 941 for the fourth quarter of a specific year. This includes wage amounts, payment dates, employee data, W-4 forms, payroll returns, tax deposits, tips earned by workers, and fringe benefits provided to employees.
  • Asset and Depreciation Records: Records related to asset cost and depreciation should be retained for many years and can vary per asset as you should consider retaining record of acquisition and disposition of capitalized assets.

It’s crucial not to automatically dispose of all returns and records. It is a good practice to periodically review important documents to identify parts that may be needed in the future. Proper record-keeping can assist with the ability to easily calculate adjusted basis, track investment gains, and handle tax-related matters.

If you have any questions or need assistance with your tax records, please don’t hesitate to contact us.