File Cabinets

Record Retention – What to Keep and What to Toss

Stacy SmithBy Stacy Smith, CPA

We’re heading into a new year; W-2s are out the door, you’re starting to think about your 2018 tax return…what else should you be doing when it comes to your finances? Let’s talk about record retention.

We get it…cleaning out your files and tossing documents can be scary because the retention guidelines vary depending on the type of document (see below). But hanging onto all of your financial documents for decades can eat up valuable space and cash if you’re renting a storage unit. Plus, the more you can limit the presence of sensitive documents, you’ll reduce the chances they’ll get into the wrong hands. Use the guidelines below when cleaning out your files to determine if and when they can be destroyed. Ensure electronic documents are backed up and any sensitive data is encrypted. Once the retention period has lapsed, shred any paper documents and use a data cleaning software to erase any electronic documents before disposing of the hardware it’s been stored on.

Keep 1 year

  • Pay stubs (until W-2 is received)

Keep 3 years

  • Bank reconciliations
  • General correspondence
  • Rejected employment applications
  • Form I-9 (3 years after date of hire or 1 year after date of termination, whichever is later)
  • Labor schedules
  • Signed credit card receipts over $25
  • Tax exempt sales documentation (state laws vary)

Keep 4 years

  • Interim financial statements
  • Cash sheets and register tapes

Keep 7 years

  • Accounts payable ledgers and schedules
  • Cancelled checks for unimportant payments (cancelled checks for fixed asset and equipment purchases should be kept permanently)
  • Major purchase receipts
  • Bank and credit card statements
  • Expense analyses and expense distribution schedules
  • Inventories of products, materials and supplies
  • Expired insurance policies
  • Accident reports and claims submitted to insurance
  • Payroll records for employees (W-4s, W-2s, deduction authorizations, cancelled checks, time and training records, health insurance offers accepted or rejected and which plan type was accepted)
  • Supporting documentation for your tax returns (W-2; final paystub for year; 1099s received; K-1s; medical receipts; IRA, year-end brokerage and annuity statements)
  • Personnel records for terminated employees
  • Quarterly and year-end payroll tax returns
  • Scrap and salvage records (inventories, sales, etc.)
  • Accounts receivable ledgers and schedules
  • Vendor invoices
  • Sales records
  • Stock, bond, CD and dividend reinvestment records (7 years from date of sale, disposition or maturity)
  • Utility records

Keep 10 years

  • Vendor invoices
  • Unclaimed vendor checks (state laws vary)
  • Unclaimed payroll checks (state laws vary)
  • Business check registers and bank statements showing checks cleared (important in an unclaimed property audit)
  • Expired contracts and leases

Keep permanently

  • Articles of incorporation, by-laws and corporate minutes
  • Buy/sell agreements
  • Capital stock records
  • Management and operating agreements
  • Franchise agreements (if any)
  • Active contracts and leases
  • Audit reports
  • Chart of accounts
  • Annual financial statements, general ledgers and end of year trial balances
  • Legal and important correspondence, including notices from IRS or any state and local tax authorities
  • Active insurance policies, claims and accident reports
  • Employment applications for current employees
  • Real estate and property documents (deeds, bills of sale, blueprints and plans)
  • Vehicle records and titles
  • Copies of Estate, Gift and Income Tax returns and worksheets, IRS agent reports and audits and other documents relating to determination of income tax liability
  • Cancelled checks, receipts and confirmation numbers for tax payments
  • Retirement and pension plan documents
  • Wills, alimony, custody or prenuptial agreements
  • Personal documents (birth, death, marriage, divorce, adoption, immigration, passports, military papers, photos and/or videos of valuables, etc.)