Record Retention For Individuals


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GUIDELINES FOR RECORD RETENTION FOR INDIVIDUALS

Individuals are never sure how long to keep various tax records that include tax returns, statements and receipts.  Sometimes it is difficult to know whether basic guidelines for retention are appropriate or fit all cases.  The following represent general guidelines.

3 Years

Records and Documentation That Should be Retained for 3 Years:  In most cases, keep records that support items on your tax return for at least three years after that tax return has been filed. Examples include:

  • Bills
  • Credit card and other receipts
  • Bank statements
  • Invoices
  • Mileage logs
  • Canceled, imaged or substitute checks or other proof of payment and
  • Any other records to support deductions or credits claimed.
  • You should typically keep records relating to property at least three years after you’ve sold or otherwise disposed of the property. Examples of such dispositions include:
    • A home purchase or improvement
    • Stocks and other investments
    • Individual Retirement Account transactions and
    • Rental property records.

7 Years

Records to Be Kept Seven Years

  • Copies of Form 1099s
  • Bank statements
  • Receipts for medical payments
  • Form K-1s from Partnerships or S Corporations should be kept for seven years after the disposition, termination of the entity.
  • Retirement plan, 401(k), Keogh statements should be kept for seven years after the final payoff.
  • Annuity year end statements should be kept for seven years after final payout.
  • Brokerage statements and trade confirmations should be retained for seven years after the accounts have been closed and the underlying assets have been sold.

Indefinitely

Records and Documentation That Should Be Retained Indefinitely

  • Tax Returns. These returns can help prepare future returns.  You may also need them if you need to file amended returns.
    • Tax Tip:  There is no statute of limitations for an audit if you do not file your returns. So if you do not keep a copy and the taxing authority has lost the return, you have no way to prove you filed.
  • Copies of W-2s.  Hold on to them to check against what social security records indicate.  Once you start receiving social security, you can probably discard these W-2s, but prudence would dictate just holding on to them.
  • Life insurance policies
  • Residence or investment property records including record of your purchase, including deed, settlement sheet, list of improvements and documentation supporting same, cancelled checks related to such purchase or improvements.  Once sold, you should keep these records, including home improvements, for at least three years after you have sold or disposed of the property.
  • Birth Certificates
  • Wills, Trusts, Durable Power of Attorney, Living Wills
  • Medical records
  • Death Certificates of Family Members, as well as any wills, trusts of a decedent and the decedent’s estate tax, inheritance tax returns, tax clearance certificates, final accounting, if any.

How to Keep Records

Although the IRS generally does not require you to keep your records in any special manner, having a designated place for tax documents and receipts is a good idea. It will make preparing your return easier, and it may also remind you of relevant transactions.

Good record-keeping will also help you prepare a response if you receive an IRS notice or need to substantiate items on your return if you are selected for an audit.

Bottom Line

When in doubt, the prudent course of action is to preserve the records or documentation indefinitely.  Additionally, documents should be scanned into a computer for safekeeping and backup. In some cases a discussion with your tax attorney or tax accountant may be warranted and necessary before disposing or destroying documents.

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From their offices in Philadelphia, PA, the law firm of Steven J. Fromm & Associates, P.C. provides a full range of estate planning, probate and estate administration, tax, business and corporate legal services to clients throughout eastern Pennsylvania and the Delaware Valley, the Lehigh Valley Area, the Five-County Area, Bucks County, Delaware County, Montgomery County, Chester County, Philadelphia County, Berks County, Lehigh County, Lancaster County, York County, Harrisburg, Norristown, Doylestown, Media, West Chester, Allentown, Lancaster, and Reading.