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How Long Should You Keep Your Important Documents?

We are often asked this question, but the truth is, the answer depends on a number of factors: your company’s policies, the type of files in question, whether they continue to serve a useful purpose, or if all legal and regulatory requirements are met. The record retention policy of a business should be based on the length of the statute of limitations (which varies by state) for breach of contract, breach of fiduciary duty, and professional liability claims. By the same token, with the exception of company policy guidelines, an individual’s personal records should be retained based on the same criteria.

The statute of limitations period for income tax returns is generally three years from the later of their original filing or due date (six years if there is an understatement of gross income of 25% or more). Regardless of tax assessment periods, we recommend that taxpayers retain certain records such as tax returns, results of an audit by a tax authority, general ledgers, and financial statements indefinitely. This is especially true if your returns involve depreciation, capital gains, or net operating losses.

For your reference, we have provided a Record Retention Guide. We advise you also to consult with your attorney and insurance provider when establishing a record retention policy. You should review it and revise it as necessary on an annual basis to reflect any changes in governmental and professional requirements while, at the same time, considering the cost of retention. It is also important to remember that these retention periods are guidelines, not hard and fast rules, and are not intended to be all-inclusive.

It should also be noted that the IRS permits taxpayers to convert paper tax documents to electronic images and maintain only the electronic files. The paper documents can then be destroyed. Although these IRS rules pertain to businesses and sole proprietors, they presumably apply to individuals as well. The IRS, as well as many states, has issued guidance that outlines the requirements that must be met to take advantage of an electronic storage system.

If you have any further questions, please contact Bob Jahelka at 516-861-3707 or .

 
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