How Long to Keep Financial Records

Do you love throwing out unneeded paperwork and other clutter, or are you a packrat? When it comes to your financial records, it’s probably best to be somewhere in between – dispose of records when you can, but not before. How long you should keep financial records depends on the action or event that the document memorializes.

For tax records, you should keep copies of your filed income tax returns permanently, including amended returns. Keep documents that support an item of income, deductible expense, or credit until the statute of limitation has expired for that tax year. The statute of limitations is the period of time within which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax, usually three (3) years. 

The IRS provides more detailed information about the statutes of limitation that apply to income tax return documents:

  1. Keep records for three (3) years after the original filing deadline, unless #4, #5, or #6, below, apply to you.
  2. Keep records for three (3) years from the date you filed your original return or two (2) years from the date you paid the tax, whichever is later, if you file an amended tax return.
  3. Keep records for seven (7) years if you file a claim for a loss from worthless securities or bad debt deduction.
  4. Keep records for six (6) years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  5. Keep records indefinitely if you do not file a return.
  6. Keep records indefinitely if you file a fraudulent return.
  7. Keep employment tax records for at least four (4) years after the date that the tax becomes due or is paid, whichever is later.

As usually happens with taxes, there are exceptions. For example, tax-related and other records relating to property should be kept until the statute of limitation expires for the year in which you dispose of the property. You will need these records to figure any depreciation deduction and to figure the adjusted basis and the gain or loss when you sell or otherwise dispose of the property. Records for nontaxable property exchanges should be kept for the old property that you gave up, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property.

Records no longer needed for tax purposes might be needed for another reason. Do not discard them until you check on whether you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep some documents longer than the IRS does.

Need more details about whether you’re throwing out too much or you’re being a packrat? The IRS has them for your at https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records.

Has It Been Eight Years Already?

This past Monday was the eighth anniversary of quitting my corporate J.O.B. and starting my own business. It wasn’t an easy or quick process. I’ve learned a lot and adjusted my approach along the way based on feedback from clients and other business owners. I’ve benefitted from tenacity and serendipity and achieved my business and personal goals. Plus, I’ve had some fun along the way. The fun is probably why the time has flown by so quickly.

Anniversaries are worth celebrating, as well as the perfect time for reflection. That date on the calendar reminds us to step back to assess our progress, identify areas of potential improvement, and update our goals. Businesses that survive long enough to celebrate many anniversaries are the same ones that invest time and effort on these four activities:

  1. Plan to Meet Defined Objectives

A business plan is a road map to get where you want to go and help to keep your “Eye on The Prize.” Unless you know what you’re reaching for, you can’t grab it. Set your overall objectives and describe the detailed steps to achieve them. Set interim milestones along the way to help measure your progress and keep you motivated.

  1. Execute Your Plan

Actively work through the detailed steps in your plan. It’s exhilarating to achieve goals and move forward. Executing your plan also gives you opportunities to get more information. Use added information to adapt your plan and make course corrections. Also, listen to how your network receives your message and adjust the wording to get your message across better.

  1. Outsource Needs You Can’t (or Shouldn’t) Meet

Be realistic about aspects of your business where you do not have the necessary expertise or can’t take the time away from your core business to do yourself. Legal, accounting, and social media are some areas where engaging an expert can accomplish specialized tasks, free up your time, and prevent you from making costly mistakes.

  1. Give Back

Answering general questions in your area of expertise and presenting at workshops are ways that you can share knowledge with your network and establish your credibility. Sharing tips and perspective helps to create your brand and draw people to you and your business. Being generous is often its own reward, over the long run.

The last eight years of having my own business have been hard work, fun, and rewarding – all at the same time. It takes a lot more than investing in the four activities described above to be successful. But businesses that invest in planning, executing, outsourcing, and giving back increase the chances that they will celebrate anniversaries for years to come.