Record Retention Guide

A record retention guide is a comprehensive document or set of guidelines outlining the recommended duration for retaining various financial and tax-related records. These records include tax returns, receipts, invoices, bank statements, investment statements, and other documents relevant to an individual's or business's financial transactions. The guide typically advises how long to keep records for tax purposes, auditing purposes, legal requirements, and personal preference. It helps individuals and businesses stay organized, comply with regulations, and prepare for potential audits or inquiries from tax authorities.

How Long to Keep Tax Records:

You should keep your tax records for as long as they might be needed for IRS administration purposes. This generally means keeping records that support items on your tax return until the period of limitations for that return expires. The period of limitations varies depending on factors like whether you owe additional tax, the presence of unreported income, filing fraudulent returns, or not filing a return at all. Additionally, records related to property should be kept until the period of limitations expires for the year in which you dispose of the property.

Why Keep Records:

There are several reasons to keep records beyond tax purposes, including insurance or loan requirements. Good records help you identify sources of income, track expenses, determine the basis of property, prepare tax returns accurately, and support items reported on tax returns.

Kinds of Records to Keep:

Basic records, such as income and expense documents, are essential for proving your financial activities. These include forms like W-2s, 1099s, bank statements, receipts, and invoices. Specific records, like those for alimony, business use of home, casualty and theft losses, child care expenses, contributions, and more, may be required depending on your circumstances. Proof of payment, such as cancelled checks or financial account statements, is also crucial.

Maintaining organized and comprehensive records is essential for tax compliance, accurately reporting income and expenses, and supporting deductions and credits claimed on tax returns.