Recently one of our Accountants, Ken Awbrey, shared that he was asked about how long someone should keep documentation. He listed the following guidelines:
If the items are included in your tax return – either as an item of income or declared as a deduction – keep the documentation for it for 7 years after you have filed the return. You don’t necessarily need to keep the paper copy, you can keep electronic documentation, but just make sure you have access to it for a period of seven years. Items in this category include 1099s, W-2’s, documentation for deductions such as Home mortgage interest, property taxes, contributions, DMV fees, etc. For those that have returns that include businesses, ensure this covers accounting records and receipts for items purchased and depreciated.
If the items relate to your house or another piece of property that generate capital gain income or losses – ensure that you keep the item for 7 years AFTER the sale of the property. Items in this category include the escrow statement when you originally purchased the property or amounts that add to the cost basis and value of the property such as improvements to the asset.
If the items relate to a warranty or purchase – ensure you keep the documentation for the warranty period in question. For automobiles, ensure you keep documentation of regular maintenance that ensures that the Dealership sees that you are maintaining the car in good working order. For computers, ensure that you keep the original invoice and even review if the item needs to be registered on the manufacturers’ web site in order to be eligible for future support and warranty coverage.
For everything else – there’s no need to be a paper or information hoarder and keep any other documents unless you really want to do so. For example — It’s not necessary to keep receipts for items that you didn’t deduct on your tax return. Nor is it necessary to keep copies of your tax documents after that seven year window passes. You can shred these documents once the periods noted above have passed.
For those items that you should have kept and accidentally didn’t, we often keep these documents for you in our tax files. So if you’ve accidentally shredded that old escrow statement, don’t panic, give us a call and we may already have it in our permanent files for our future needs.
When you are finally ready to purge old documents, don’t just place them in the trash can, ensure that you shred these documents to ensure that you aren’t subject to possible identity theft from sensitive information on these old documents. If you don’t have a shredder, the Better Business Bureau often has free shred events, so look for such events in 2014.