Record retention is a complicated issue, but as a general rule individuals should keep their documents for at least seven years, except for your tax returns, which should be kept permanently.
Beyond your tax return there are other records that also need to be kept permanently. For individuals that includes marriage and divorce documents, estate planning documents, IRA annual reports and form 8606 for IRA nondeductible contributions.
A lot of business records have to be kept forever as well. Everything from audit reports, depreciation schedules, fixed asset purchase records, board minutes, and benefit plans have to be kept among your records.
There are a few things that don’t have to be kept quite forever. Minor contracts, insurance policies, and lease payment records only need to be kept for 4 years after the life of the contract. Expense records, sales records and ex-employee files only need to be kept for seven years.
Back to personal records, things that support your income, including W-2s, 1099s, and Form K-1s should be kept for seven years. You may want to include bank statements and big bank deposits slips as well. Similarly, you want to keep anything related to an itemized deduction that you claim, so charitable contribution receipts, mortgage interest payments, medical deductions, work expenses.
Even if you don’t itemize your deductions you may get tax breaks for child care expenses, and insurance premiums for self-employed people, so you should keep those records as well.
The reason that you should keep things for seven years is that while the IRS can do a “routine” audit for three years after filing, if they suspect that income is under reported they can do audits for six years.
If you have questions about what records need to be retained, save it for now and then make an appointment with your accountant to go over the specifics of your particular case. This is something that Tardy & Co., PC can assist individuals and businesses with.