One question we often get is how long should specific records be kept. The simple answer is to keep the records for as long as they serve a useful purpose or until all regulatory requirements are met. Unfortunately, statutes vary depending on whether the documents relate to federal, state, tax or legal issues. Generally, the statute of limitations for income tax returns is three years from the date you filed the returns but can be as much as six years for gross underreporting or even indefinitely in cases where there is fraud. It is often advisable to keep the records for one year beyond the statute of limitations, so that would put tax records from between 4-7 years.
While this is the general guideline, there are some items that should be held indefinitely. Documents that should be kept indefinitely include audit reports and year-end financial statements, depreciation schedules, IRS audit reports, journals, tax returns, and property records. Other documents should be kept for as long as they are relevant. For example, keep car or other property purchase records until the assets are sold. In most cases, the IRS allows records to be retained in an electronic format as long as certain requirements are met. To discuss these retention guidelines, contact us at 760-777-9805.