Store or Shred? What you need to know about document retention

CPA, Certified Public Accountant, Texas, Austin, Taxes, Tax Preparer, Tax Accountant, Tax Refund

The IRS recently revised legislation that previously kept the statute of limitations open for 6 years for any understatement of income greater than 25% of gross income. The new law now provides that an in addition to understatement of income, overstatement of deductions that results in the same 25% omission of income leaves you open to IRS audit for 6 years!

With the 2014 tax season behind us, I’ve had several clients ask how long they actually need to keep some of their tax records. I’ve compiled a list of the more common documents, specifically related to individuals, and how long you actually need to hoard these pieces of paper for.

Personal Documents to keep forever:

  • Audit reports
  • Legal documents
  • Property records, improvement receipts (or 7 years after property is disposed)
  • Investment trade confirmations
  • Retirement and Pension records until all distributions are made

Personal Documents to keep seven years:

  • Supporting documents for tax returns (W-2’s, charitable contribution receipts, etc.)
  • Income tax returns
  • Income tax payments

Personal Documents to keep three years:

  • Utility records
  • Expired insurance policies
  • Medical bills

Note that these times are from the date that your original tax return was filed. If you have a scanner, the IRS does accept digital copies as long as they are legible. I recommend keeping a local backup as well as a cloud backups on Google Drive, Dropbox, Box, or any other secure cloud based storage.

If you have any questions about document retention, please contact Paul Glantz, CPA at paul@launchconsultinginc.com