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Record Retention

The VSCPA intends the following schedule to be used only as a guide. Retention periods are conservatively long and are suggested with federal requirements in mind. Be sure to check with local and state authorities for specific requirements.

Record retention is a must, whether for personal, business or tax reasons. However, record retention is necessary only to the extent it serves a useful purpose or satisfies legal requirements. For example, generally the IRS must assess additional tax within three years, the period is six years if the taxpayer omits items of gross income that in total exceed 25% of gross income reported on the return.  If a fraudelent return is filed or if no return is filed there is no limit to the periods the tax can be assesed. In practice, most individuals and businesses retain records based on available space. Many accounting firms maintain permanent files for their clients. In a permmanent file, such legal documents as will, leases, employment agreements and debt information will be obtained. In addition, other pertinent tax documents such as Subchapter S election approval or Keogh plans may be kept in this file. Non-tax records that an accountant has performed an audit should be retained until no known legal action can be filed. This time period varies from state to state and according to whether the action alleges contract or tort damages. Seven years, in most states, would be satisfactory for retention. Permanent files are not unique to accounting firms alone, other businesses can also benefit from the establishment of permanent files.

Advanced technology has somewhat  eliminated the inconvenience of retaining records. The use of microfilm can condense reams of paper to the size of a single sheet. Microfilm is not without disadvantages - it is relatively expensive, non-billable to clients and once the system is adopted, it generally becomes permanent. 

Individuals, businesses and accounting firms facing record retention must answer two questions:

  1. What must I keep?
  2. How long do I have to keep it?
 

Below are charts devised for individuals, businesses and accounting firms. These charts may be used as a guideline for most records but be sure to check local and state requirements. Detail on many aspects of record retention, including tax records can be found in The Guide to Record Retention Requirements in the Code of Federal Regulations. A publication available from the Superintendent of Documents or from Commerce Clearing House.

Record Retention Schedule

IRS Practice & Procedure
 
Sales & Receivables
 
Sales journals
7yrs
Shipping tickets
3yrs
Accounts receivable ledgers & trial balances
7yrs
Invoices
7yrs
Uncollectible accounts & write offs
7yrs
Expired contracts & notes
7yrs
Purchases & Payables
 
Purchase journals
7yrs
Bills of lading
3yrs
Accounts payable ledgers & trial balances
7yrs
Purchase orders
3yrs
Paid bills & vouchers
7yrs
Expired purchase contracts
7yrs
Payroll
 
Payroll journals
7yrs
Time cards
7yrs
Payroll reports – federal & state
7yrs
Assignments & garnishments
3yrs
Forms W-4
7yrs
Accounting Firms
 
Tax Files                        In Office
In Storage
Present clients                  3yrs
Permanently
Former clients                   3yrs
7yrs
 
 Workpaper Files             In Office
In Storage
Auditors review & reports
 
Permanently
Former/Prensent client       3yrs
7yrs
Correspondence files          3yrs
7yrs
Individual Records
 
Tax return copies
6yrs
Medical bills
6yrs
Forms 1099 received
6yrs
Keogh statements – terminated
6yrs
IRA records – terminated
6yrs
Loan records – after payoff
6yrs
Insurance polices – expired
6yrs
Major purchase receipts
6yrs
Year-end brokerage statements after deposit
6yrs
Certificates of deposit statements after maturity
6yrs
Schedule K-1’s from partnerships or S Corps.
6yrs
House records
Permanently
Birth & death certificates
Permanently
Medical records
Permanently
Wills
Permanently
Forms W-2 received
Permanently
Trust agreements
Permanently
Detailed list of financial assets held
Permanently
Alimony & Prenuptial agreements
Permanently
Military papers
Permanently
Photos or video tape of valuables
Permanently
 
 
·         Note – Documents establishing basis of trade, business or investment assets or taxpayers principal residence should be retained for six years beyond the date of filing of the tax return for the year in which the asset was disposed.
 
 
 
Business Records
 
General & Financial
 
Capital stock records
Permanently
Corporate records & minutes
Permanently
Property titles & mortgages
Permanently
Federal, state & Local tax returns
Permanently
Fixed asset records & appraisals
Permanently
Accountants audits reports
Permanently
Interim & year-end financial statement & trial balances
Permanently
Monthly trial balances
Permanently
Cash
 
Cash receipts & disbursements
7yrs
Bank statements, cancelled checks & deposit slips
7yrs
Bank reconciliations
7yrs
Petty cash vouchers
7yrs
Inventories
 
Perpetual inventory records
7yrs
Physical inventory records
7yrs