Individual Record Retention GuidanceFebruary 25, 2015
Joshua J. Bloom, CPA,
Every tax season, individuals start looking through their files and records and ask themselves, “Is this something I need to keep or is this something I can shred?” People don’t want to keep more than they absolutely have to—but don’t want to get rid of things that they might need. One of the most common questions I get as an accountant is, “how long do I really have to hold onto this for?”
We have put together a sample record retention guide for individuals, which can be downloaded here.
Guidance provided on this sample list is based on what would happen if you were to be audited by the IRS. Generally, the statute of limitations on your federal income tax return is three years after the due date of the return, or three years after the return was actually filed or amended, whichever is later. If the IRS thinks you left off 25% or more of your gross income, that three-year statute of limitations increases to six years. If you’re not filing a return, there is no statute of limitation.
Another section of the guidance reinforces that certain documents should be kept forever. You should not be throwing away a birth certificate or a marriage certificate. Other documents should be kept in the event that a dispute arises. These documents should be kept in a safe place such as a fireproof safe or a safe deposit box.
If you don’t have a filing cabinet and don’t want to keep pieces of paper in your home, you can scan them and keep the records electronically. Revenue Procedure 97-22 allows you to keep electronic records. There are certain things you should always keep physical copies of, such as birth certificates. Documents can be scanned using many multi-function printers on the market that have scanning functions, using retail document scanner devices, or using apps on your smartphone. Files should be named using an identifiable name (“2014 Tax Return.pdf”, “2014 K-1 XYZ Company.pdf”, “Power of Attorney 2014-09-30.pdf”), organized in a logical manner and should be backed up regularly using external hard drive, CDs, flash drives, etc.
Remember that anything that is being thrown away should be disposed of appropriately. Anything that is being disposed of which has your name, address, social security numbers, account numbers, preapproved credit applications, or any other documents with any identifying information should be shredded so that someone cannot pull any identifying information. It is worth the investment to get a good cross-cut shredder, which will turn a document into tiny, useless pieces of unreadable paper, and provide peace of mind. There are regular shredding events in Rhode Island, Massachusetts and Connecticut where you can bring a bag of documents for free.
If something were to happen to you, do your loved ones know where everything is? If an emergency or accident arises, your family needs to be able to get to your personal records. Let your family know where these items can be found.
The retention periods listed indicate the minimum requirements and are provided as general guidance to customize in determining your own document retention policy. Because statutes of limitations and state and local regulatory requirements vary from state to state, each person should carefully consider its requirements and consult with legal counsel before adopting a document retention and destruction policy. In addition, federal awards and other government grants may provide for a longer period than is required by other statutory requirements.
We have also previously put together a sample record retention guide for businesses, which can be downloaded here.