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

• IRS: At least 3 years. See the following for details.
  • Business and Self-Employed Record Retention Guide
  • Topic No. 305: Recordkeeping
  • Publication 463 (2021), Travel, Gift, and Car Expenses
• FTB: At least 4 years. See the following for details.
  • Keeping Your Tax Records
  • Quick Youtube Video On Recordkeeping

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

• Property Records / Improvement Receipts
• Income Tax Returns
• Income Tax Payment Checks
• CPA Audit Reports
• Legal Records
• Important Correspondence
• Investment Trade Confirmations
• Retirement and Pension Records

Personal Documents To Keep For Six Years

• Supporting Documents For Tax Returns
• Accident Reports and Claims
• Medical Bills (if tax-related)
• Sales Receipts
• Wage Garnishments
• Other Tax-Related Bills

Personal Documents To Keep For Four Years

• Credit Card and Bank Statements
• Medical Bills (in case of insurance disputes)
• Utility Records
• Expired Insurance Policies

Personal Documents To Keep For One Year

• Paycheck Stubs (reconcile with W-2)
• Canceled checks
• Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year end statement)

Special Circumstances

• Car Records (keep until the car is sold; keep expense records for 4 years beyond selling)
• Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
• Property Records / improvement receipts (keep for 6 years after the property sold)
• Sales Receipts (keep for life of the warranty)
• Stock and Bond Records (keep for 6 years beyond selling)
• Warranties and Instructions (keep for the life of the product)
• Other Bills (keep until payment is verified on the next bill)
• Depreciation Schedules and Other Capital Asset Records (keep for 4 years after the tax life of the asset)

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.

• Audit Reports from CPAs/Accountants
• Cancelled Checks for Important Payments (especially tax payments)
• Cash Books, Charts of Accounts
• Contracts, Leases Currently in Effect
• Corporate Documents (incorporation, charter, by-laws, etc.)
• Documents substantiating fixed asset additionss
• Deeds
• Depreciation Schedules
• Financial Statements (Year End)
• General and Private Ledgers, Year End Trial Balances
• Insurance Records, Current Accident Reports, Claims, Policies
• Investment Trade Confirmations
• IRS Revenue Agents’ Reports
• Journals
• Legal Records, Correspondence and Other Important Matters
• Minute Books of Directors and Stockholders
• Mortgages, Bills of Sale
• Property Appraisals by Outside Appraisers
• Property Records
• Retirement and Pension Records
• Tax Returns and Worksheets
• Trademark and Patent Registrations

Business Documents To Keep For Six Years

• Accident Reports, Claims
• Accounts Payable Ledgers and Schedules
• Accounts Receivable Ledgers and Schedules
• Bank Statements and Reconciliations
• Cancelled Checks
• Cancelled Stock and Bond Certificates
• Employment Tax Records
• Expense Analysis and Expense Distribution Schedules
• Expired Contracts, Leases
• Expired Option Records
• Inventories of Products, Materials, Supplies
• Invoices to Customers
• Notes Receivable Ledgers, Schedules
• Payroll Records and Summaries, including payment to pensioners
• Plant Cost Ledgers
• Purchasing Department Copies of Purchase Orders
• Sales Records
• Subsidiary Ledgers
• Time Books
• Travel and Entertainment Records
• Vouchers for Payments to Vendors, Employees, etc.
• Voucher Register, Schedules

Business Documents To Keep For Four Years

• Employee Personnel Records (after termination)
• Employment Applications
• Expired Insurance Policies
• General Correspondence
• Internal Audit Reports
• Internal Reports
• Petty Cash Vouchers
• Physical Inventory Tags
• Time Cards For Hourly Employees