Many of you ask, "When can I throw away the paperwork?" Here is a guide that I hope will be helpful. If you have any questions please ask. If in doubt, don't throw it out.
These suggestions are for compliance purposes with the IRS and the State of Washington. You may want to keep records longer than suggested here for historical purposes or to track investment performance or for some other reason!
Note that these suggestions for record retention do not apply if you: do not report income that you should report, file a fraudulent return, do not file a return, file a return late, or do not pay the tax owed.
|
A |
B |
C |
D |
|
Type of Record |
How long to keep |
Possible exceptions to column B |
Why keep the records |
| You as an individual or
business owner |
|
Completed income tax returns |
4 years following the year of your death |
You can toss returns with no capital gains, dividends,home sales, rentals, K-1s from pass-through entities, IRA activity or no self-employment income. |
To prove you have filed, to prove social security
earnings, and to prove tax basis. Also, for the filing of amended returns and
for carrybacks of credits and net operating losses. To prove non-deductible
IRA contributions. |
|
Backup data to tax returns, such as: |
|
Bank statements |
5 years |
|
Washington State gross receipts audits and IRS audits |
|
W-2s |
Forever |
|
To prove social security earnings |
|
Real estate settlement statements (purchase, sell or
refinance) plus invoices related to capital improvements to the property |
As long as you own the property plus 4 years after the
year of sale of the property |
If you applied a code section 1031 tax-free exchange then
you need to keep all of the records relating to the property that was
exchanged out. |
You might turn your residence into a rental, sell your
residence for a gain in excess of $250,000, or sell an easement. |
| a |
Documents related to itemized deductions such as taxes,
interest, charity, auto expense, bad debts, dependents, etc. |
4 years following the year of the tax return of the
deduction |
You have seven years, instead of three, to file an amended
return related to a bad debt. |
To substantiate deductions, including deductions for
dependents, to the IRS. |
|
Documents related to security investments: |
| b |
Records of the purchase, reinvested dividends, sale,
inheritance, gift or worthlessness of a taxable security. |
As long as you own the security plus 4 years after its
sale year |
Documents related to worthless securities must be kept for
seven years after the sale year of the security. |
To substantiate what your tax basis is for an investment,
including reinvested dividends. Always ask for the tax basis of a security
that is gifted to you or inherited by you. |
|
Roth IRA records |
As long as you own it plus 4 years after the last distribution |
|
You may pay tax and/or penalties if you withdraw amounts
before you are 59 1/2, or prior to five years from the date that you first
contributed to, or converted to, a Roth IRA. |
|
Traditional IRA records - deductible IRAs |
4 years after the year deducted if all contributions were
deductible |
|
To substantiate the deduction. |
|
Traditional IRA records - non-deductible IRAs |
As long as you own it plus 4 years after the last
distribution |
|
To prove that you already paid tax on these dollars. |
|
Employee retirement plans |
Nothing is required unless there are designated Roth
contributions or after-tax deferrals. If so, see Roth IRAs. |
I would keep the annual statements. |
 Strip-cut paper from shredders can be recycled. Cross-cut fibers
can only go into the compost. |
|
Self-employed retirement plans |
4 years after the year for which a deduction was taken for
a contribution |
I would keep the annual statements. |
You have to substantiate the deduction. |
| You as an employer |
|
W-2s, time sheets, personnel records, tip logs |
4 years after the year the employee terminated |
|
Future lawsuits for discrimination or back-pay, Washington
State audits |
|
Injury reports |
5 years after employee termination |
If employee had exposure to hazardess substance keep for
40 years. |
|
|
Employment tax records |
4 years after year of termination |
|
Federal & Washington State audits and substantiation
of deductions |
| You as a business owner |
|
Gross receipts records, excise tax returns, capital
equipment and other purchases |
5 years |
|
Washington State Department of Revenue audits |
|
Articles of Incorporation, bylaws, financial statements,
corporate stock records, meeting minutes |
Permanent |
|
Possible shareholder dispute and for the sale of the
business |
|
 |
|
|
|
a) Keep auto repair bills for mileage substantiation and keep appointment calendars that can evidence business activities and auto use.
b) Always keep the December monthly statement from your brokers and mutual funds. Also, brokers recently have been listing the securities purchases on the 1099 IRS reports. Keep the 1099s. Also keep any document that says 'Year-end Summary" or "Year-end Tax Report". If you keep these documents, then you don't need to keep the monthly statements for months other than December.
