Record Retention Policy

Know what to keep, how long to keep it, and when it’s safe to dispose of it.

West Michigan Tax Record Retention

Storing tax records: How long is long enough?

April 15 has come and gone and another year of tax forms and shoeboxes full of receipts is behind us. But what should be done with those documents after your check or refund request is in the mail? What should be your record retention policy?

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

If the IRS 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. To be safe, use the guidelines below.

Before You Discard Anything

Shred it. Don’t just throw it out.

Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you must dispose of these records by shredding them and not disposing of them by merely throwing them away in the trash.

The Retention Schedule

Four holding periods, two sets of records.

Business records and personal records follow the same four periods but contain very different documents. Choose the set that applies to you, then work down from one year to forever.

Own a business and file personally? You need both. Keep the two sets stored separately so a purge of one never touches the other.

1 Year

7 document types

The paper that has already done its job

These are working documents. Once the transaction they support has been recorded and reconciled, they carry no further audit or legal value, and holding them only adds volume to your filing system.

3 Years

10 document types

Records that back up a single reporting period

Three years matches the standard federal statute. These documents substantiate the figures in one year’s statements and payroll filings, and they are the first thing an examiner asks to see when a routine question comes up.

6 Years

22 document types

The audit window: your ledgers, payroll and receivables

This is the largest group, and for good reason. Six years covers the extended look-back the IRS can invoke, so anything that proves revenue, cost or employment belongs here. If you are deciding where a document goes and cannot tell, this is usually the answer.

*Keep terminated employee personnel records for seven years.

Forever

22 document types

Documents that outlive every statute

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. Ownership, basis in property, corporate authority and pension obligations can all be questioned decades later, and no statute of limitations helps you if the original document is gone.

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 additions
Deeds
Depreciation Schedules
Financial Statements (Year End)
General and Private Ledgers, Year End Trial Balances
Insurance Records, Current Accident Reports, Claims, Policies

1Year

Interim statements

Interim statements, superseded by the annual

One rule covers this period, and it is the easiest cleanup in the house. Once the year-end summary arrives, the monthly and quarterly versions of the same account are redundant.

3Years

4 document types

Household paperwork you might need to dispute

None of these prove a tax position on their own. You keep them because a billing error, an insurance denial or a coverage question can surface a year or two after the fact, and the original record settles it.

6Years

7 document types

Anything that supports a number on your return

If a document explains a deduction, a basis figure or reported income, it belongs here for the full six-year look-back. Medical bills appear in both the three-year and six-year groups: keep them the longer period whenever they were tax-related.

Forever

7 document types

Your permanent financial file

This is the short list worth protecting properly, ideally in a fireproof box or a secured digital archive your family can reach. Returns and payment records establish a lifetime of filing history, and retirement documents can matter to your heirs long after they matter to you.

Special Circumstances

Records tied to an event, not a calendar.

Some documents have no fixed retention period. What governs them is the life of an asset, a policy or a warranty, so the clock starts when that thing ends.