AD Singleton & Co, CPA, Inc.

Certified Public Accountant

Record Retention Guide

Storing Tax Records: How Long is Enough?

Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.

California law requires a minimum of four years of supporting records.

Sometimes you need to keep the records even longer.

If the IRS or FTB believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit.

Guidelines

Create a Backup Set of Records and Store Them Electronically

Keeping a backup set of records — including, for example, bank statements, tax returns, insurance policies, etc. — is easier than ever now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet.

Even if the original records are provided only on paper, they can be scanned and converted to a digital format. Once the documents are in electronic form, taxpayers can download them to a backup storage device, such as an external hard drive, or store them on a secured cloud location.

You might also consider online backup, which is the only way to ensure that data is fully protected. With online backup, files are stored in another region of the country, so that if a hurricane or other natural disaster occurs, documents remain safe.

Caution: Identify Theft

Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it.

Electronic records should be encrypted and ideally stored offline in duplicate. Similarly, access to physical records should be secured.

After it is no longer necessary to retain your records, dispose of them by physically shredding them. Do not dispose of them by merely throw them away in the trash.

Similarly, electronic storage should be securely erased and physically destroyed before parting with it for proper disposal.

Personal Records To Keep Forever

Personal Documents To Keep For Six Years

Personal Documents To Keep For Four Years

Personal Documents To Keep For One Year

Special Circumstances

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you’ll want to retain these documents indefinitely.

Business Documents To Keep For Six Years

Business Documents To Keep For Four Years