Resources – Record Retention Guide

I offer the following guidelines for retaining important financial records…

In general, IRS regulations mandate a three (3) year retention period for tax returns and supporting information.  This time period is consistent with the Revenue Service’s audit period for most tax returns.  In other words, the IRS generally has three years from the due date of a return or the date of filing (whichever is later) to examine a taxpayer’s return.  This three year retention and audit period is commonly referred to as the “three-year law”.

Exceptions to the “three-year law” exist in cases where the Revenue Service suspects a taxpayer has underreported income by more than 25% or committed fraud.  The audit period for underreporting income by more than 25% is six (6) years, and there is no statute of limitations for the audit period in instances of fraudulent income tax reporting.

Below is my recommendation for retention periods of business and personal records.

Retention Period – Business Records Retention Period – Personal Records
1 Year 1 Year
3 Years 3 Years
6 Years 6 Years
Unlimited Unlimited

Electronic Storage of Records.  Storing documents electronically is common practice for many, as advances in technology have made paperless environments more affordable and convenient than paper systems.  While electronic management systems can be an effective and efficient retention strategy, the risk of identity theft is a serious threat that everyone must be aware of and guard against.  Safeguards such as firewalls, network passwords, and routine document purging should be considered necessary controls implemented within these systems.

Business Documents with 1 Year Retention Periods

  • Correspondence with Customers and Vendors
  • Carbon copies of deposit slips
  • Purchase Orders
  • Stockroom Withdrawal Documentation
  • Shipping Records (i.e., bills of laden, common carrier documents, etc.)

Business Documents with 3 Year Retention Periods

  • Employee Personnel Records
  • Employment Applications
  • Correspondence between Internal and External Parties
  • Expired Insurance Policies
  • Payroll Time Cards

Business Documents with 6 Year Retention Periods

  • Accounts Payable Ledgers and Schedules
  • Accounts Receivable Ledgers and Schedules
  • Bank Statements and Reconciliations
  • Payroll Tax Compliance Documents (including tax returns, wage reports, tax deposits, etc.)
  • Expired Contracts and Leases
  • Customer Invoices, Account Statements, and Delinquency Notices
  • Inventory Records
  • Note Receivable Ledgers and Amortization Schedules
  • Fixed Asset Ledgers and Depreciation Schedules
  • Travel & Entertainment Records

Business Documents with Unlimited Retention Periods

  • Audit Reports Issued by CPAs/Accountants
  • Cancelled Checks for Important Payments (especially tax payments)
  • Chart of Accounts for Accounting System
  • Entity Formation Documents
  • Fixed Asset Purchase documentation
  • Legal documents related to real property (i.e., buy/sell agreement, easements, deeds, etc.)
  • IRS Examination Records
  • Minutes of Corporate Entities
  • Retirement Account and Pension Plan Records
  • Tax Returns
  • Trademark, Copyright, and Patent Registrations

Personal Documents with 1 Year Retention Periods

  • Bank Statements
  • Paycheck Stubs
  • Cancelled Checks
  • Monthly/Quarterly Brokerage Statements

Personal Documents with 3 Year Retention Periods

  • Credit Card Statements
  • Medical Bills
  • Expired Insurance Policies

Personal Documents with 6 Year Retention Periods

  • Supporting Documentation for Tax Returns
  • Property Records/Improvement Receipts
  • Sales Receipts
  • Wage Garnishments

Personal Documents with Unlimited Retention Periods

  • Legal Records
  • Income Tax Returns
  • Copies of Income Tax Payments
  • Investment Trade Confirmations
  • Retirement and Pension Records