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How Long Should I Keep Financial Records?

how long do i keep financial records

So you’ve completed your tax return and are moving your files to the back storage room, closet, garage, or other archival space.  The boxes start piling up.   You’ve probably asked yourself, “How long should we keep these records?”  It would be great if you could ascribe to the old adage, “out with the old, in with the new.”  However, it’s important to hang on to your financial records for a little while longer than you would think.

Per the Internal Revenue Service, you should keep tax returns and supporting documentation for at least three years from the date you file the return; however, the statute of limitations for the Franchise Tax Board is generally four years from the date you file the return.  So, if you file your 2011 tax return on April 17, 2012, you should keep your records until at least April 17, 2016.    But, the IRS has up to 6 years to audit your return if your income is under-reported by 25%.  If you claim a loss from worthless securities or a bad debt deduction you should keep the records at least 7 years, and there is no statute of limitations if you don’t file a return or file a fraudulent return.  In general, most experts recommend that you keep financial and tax-related records at least 7 years as a conservative estimate.

Per Social Security Administration (SSA), “In light of the current budget situation, we have suspended issuing Social Security Statements.”  You may able to estimate your retirement benefit using the SSA’s Retirement Benefit Estimator.  However, as of the date of

this article, it appears that you cannot get an earnings history on paper or online (although your earnings are in the system).  There are plans to resume sending statements in the future, but only to people 60 and older.  Therefore, it appears you should permanently keep your W-2s and tax returns that support your social security earnings.

You should keep documentation related to property, such as closing statements and support for major improvements, at least four years subsequent to the year in which you dispose of the property and recognize a gain or loss.   Also documentation that may relate to income or a deduction for future tax years, such as installment sales, depreciation and amortization records, and various loss carryforwards, you’ll want to keep at least 7 years after they have been fully utilized or expired.

For further information, refer to IRS Publication 552   or the Franchise Tax Board “ Keeping Records ” webpage. You don’t need to keep paper copies; the IRS allows electronic documentation, so you can scan (our personal favorite: Fujitsu ScanSnap Scanners ) your documentation and save to an accessible CD, flash drive, or on a secure, cloud-based document management system, such as ShareFile or Dropbox.

There are other business-related documents, although not all specifically related to a tax return, that you should keep permanently for your business for legal or insurance purposes.  This suggested permanent file list is not all-inclusive.  You may want to consult with your attorney or insurance agent for documentation specific to your business.

Type of Document

Type of Document

Category: Personal Finance

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