The general rule for one-year retention is to keep items that you’ll need as a part of auditing that year’s business. You can throw out customer and vendor correspondence, notebooks, and extra purchase order copies after a year. Retain human resources information that isn’t financial in nature, other correspondence, and internal reports for three years. It’s also wise to hold on to petty cash vouchers for at least three years.
The IRS’s six-year lookback rule requires you to hold onto almost any financially related document for six years. This includes everything from bank records and cancelled checks to invoices, payroll records, and supporting documentation for travel and entertainment expenses. Remember that there are a broad range of things that could end up on your tax return, so you’ll even want to save records from any accidents or claims, since they could be related to a casualty loss deduction, or lease documents since you could need to justify how you allocated occupancy expenses.
For your own personal records, it’s wise to hold on to monthly or recurring statements like pay stubs or bank and stock statements until you’ve used them to confirm the accuracy of your year-end statement. Credit card statements, utility bill and medical records are worth holding onto for three years.
As with a business, you need to hold on to personal financial records for six years. These include anything that supports your tax return, accident information, and any property records. Records of tax-deductible medical bills and wage garnishments should also be retained.
Creating Your Plan
This list of documents just scratches the surface. There are even documents that you should hold on to forever. At the same time, with the risk of identity theft, it’s also important to have a good plan for how you will destroy records when they each the end of their lives. Contact us for a consultation to start building your record retention plan.