How long to keep your tax records?

I get this question a LOT from nonprofits and businesses alike. It’s understandable. Every year, we receive, generate, and file boxes and boxes and BOXES of financial records. And it takes up a lot of space. I was at a client office last month and they asked me to come look in their store room. They had giant Home Depot size racks with about 16 boxes of records labeled “Accounting 2015,” “Accounting 2014” and so on all the way back to 2006. And there was a whole filing cabinet of even older documents. They asked me, “What can we get rid of?” Great question! But it’s more than a matter of just throwing out an entire year of records.

 

Three important questions to ask before you purge old financial records:

1. What types of records do we keep and what do we toss?
2. Who gets to decide what to keep and what to toss?
3. How do we dispose of this potentially confidential information? Trash, recycle, shred?

 

So let’s figure this out! In this blog, we’ll cover question #1: What types of records do we keep and what do we toss?

  • The general rule of thumb is to keep most financial records for 7 years.
  • But not all accounting records are created equal. And they can’t all be stored/disposed of using the same rules.
    There are usually different rules for different types of records.
  • Because rules change, I usually start with a Google Search for ‘Records Retention Checklist’ to find the latest guidelines.
    It’s also helpful to search for a checklist, laws, or professional standards that apply to your industry (nonprofit, real estate, medical, etc.).
    The IRS also attempts to cover this on their website, which is a great place to start after this post.

 

There are special considerations for nonprofits that I’ll cover in my next blog post. A lot has changed in recent years, now that more of our information is digital. We have e-statements, so we can go green and opt out of paper statements. We can go online to find our bank statements, canceled checks, payments, and bank deposits. However, many still find it helpful to receive or print bank statements to complete monthly accounting tasks and maintain internal controls. And then we are obligated to file and store them.

 

 

Here are some important records to hold on to:

PERMANENT RECORDS: Anything you needed to establish your business, your Articles of Incorporation, Bylaws, Federal Employer Identification Number, Annual Meeting minutes, etc.

REPORTS: Annual reports such as audits, reviews, and tax returns should be considered permanent records.  (They don’t take much space anyhow.)

PAYROLL RECORDS: Employment & hiring information, time cards, payroll reports, etc.

MINUTES OF BOARD MEETINGS AND COMMITTEE MEETINGS: The minutes of these meetings and the attachments.

FINANCIAL RECORDS: Bank statements, canceled checks, check stubs, check registers, paid bills

Return of Organization Exempt From Income Tax Form

 

 

 

Documents you might be able to toss:

  • Canceled checks – In the “old days” all checks were returned to the client and this was especially helpful if you were audited.  Most banks now keep digital images of checks and looking up those digital images is either free, an additional monthly flat fee, or you have lookup fee for check images.  So keeping canceled checks is no longer so common.
  • Bank statements – Also available electronically.  But you need to know your bank’s policies on how far back you can look up your bank statements.


Now that we’ve covered the types of records you want to to keep, let’s move on to question #2: Who gets to make the decision on what to dump and what to keep?

 

Carol Stachwick offers accounting, consulting, and productivity services to private and nonprofit organizations.
You can learn more about how she can help get your books in order and make your life easier here.

 

Contact Carol today for a consultation.
E: carol@carolcpa.com
P: 858-935-6114

 

DISCLAIMER:
This information is of a general nature. This blog post does not constitute an accountant-client relationship and should not be considered legal advice. Be sure to consult with your tax preparer or legal counsel for your particular situation.