“How long should I keep this?” is a question we hear all the time from our clients and is not always easy to answer. As a general rule, records should be preserved only as long as they serve a useful purpose or until all legal requirements are met. Generally, you are required to keep records that will enable the IRS to determine your correct tax. Usually the federal statute of limitations runs out three years after a tax return is due or filed, whichever is later. However, the statute runs for six years if there is an omission from gross income of 25% or more.

In the case of fraud or failure to file, there is no time limit. Each state can determine its own statute of limitations. To keep files manageable, it is a good idea to develop and use a schedule so that at the end of a specified retention period, certain records are destroyed.

We offer this schedule as a starting point.

Individuals

Gift tax returns Permanently
Income tax returns Permanently
Net operating loss carryovers, carrybacks Until 7 years after use
Documents supporting income & deductions 7 years
Depreciation schedules Until 7 years after full disposition
IRA basis information Until 7 years after account distribution
Other basis information (real estate, stocks, bonds, etc.) Until 7 years after full disposition
Charitable contributions Until 7 years after taking deduction

Businesses

Accounts receivable & payable ledgers 7 years
Articles & certificates of incorporation Permanently
Appointment books 4 years
Audit reports of accountant Permanently
Bank statements of reconciliations 7 years
Bylaws and charter Permanently
Canceled checks (or images) – general 7 years
Canceled checks (or images) – important ones Permanently
Capital stock & bond records; canceled certificates Permanently
Cash receipts & sales journals 7 years
Cash disbursements & purchases journals 7 years
Contracts & leases (after termination) 20 years
Correspondence – routine (with vendors, etc.) Optional
Correspondence – sales  4 years
Correspondence – legal & important  Permanently
Deeds, mortgages, bills of sale  Permanently
Depreciation schedules  Permanently
Duplicate deposit slips  4 years
Drafts paid  3 years
Employee personnel records (after term)  4 years
Employment tax records  4 years
Expense Account Analysis  7 years
Financial statements (annual)  Permanently
Financial statements (monthly)  3 years
Income tax returns & revenue agent reports  Permanently
Insurance – current policies, claims, accidents  Permanently
Insurance – expired policies  10 years
Internal audits (dependent on what is audited)  Varies
Inventories  7 years
Invoices – customers & vendors  7 years
Minute books – directors & stockholders  Permanently
Net operating loss carryovers, carrybacks (after use)  7 years
Notes (canceled)  7 years
after cancellation
Pension & profit sharing information  Permanently
Petty cash vouchers  4 years
Property appraisals by outside appraiser  Permanently
Property records – costs, plans, blueprints  Permanently
Sales invoices  7 years
Sales & use tax returns  Permanently
Scrap & salvage records (after write-off)  7 years
Stockholders’ records  Permanently
Trademarks, patents, copyrights  Permanently
Uncollectible accounts (bad debts)  7 years

This schedule is intended to be used as a guideline. Various regulatory, statutory, and industry practices may supersede these general recommendations. For specific questions, please contact us at (719) 574-7930.