It’s a new year and one of the first things we’re reminded of this tax season is, of course filing and storing important documents… both our personal and professional lives are shadowed by the looming requirement to gather all records and file state and federal returns. For some, this means a few clicks in tax management software that’s been well maintained throughout the year, while for others it’s a scrambling fury to find those pesky receipts, invoices, pay stubs, etc. No matter your situation you likely come across old records and wonder “why do I still have this” you may have to remind yourself “how long should I keep tax returns?” or “how long should you keep bills before shredding?”. Perhaps we can help.

What To Keep and For How Long

In this quick reference guide, we’ve laid out IRS rules, general good practices for shredding maintenance, and how long you should keep personal and business records.

What’s Below:

1. 1. Limitations periods for tax returns
   2. Shred Immediately
   3. Shred after 1 year
   4. Shred after 3 years
   5. Shred after 6 years
   6. Shred after 7 years
   7. Shred after 10 years
   8. Shred when it’s gone
   9. Never Shred

1. Periods of limitations for tax returns

For taxes specifically, it’s good practice to keep tax records that show income or costs incurred which are included in a filed tax return. The Internal Revenue Service (IRS) have established a statute of limitations, periods when you can amend a filed tax return; these periods are also the duration they can look further into filed federal tax returns for additional taxes owed. Here are a few rules to be aware of:

• • An audit can occur for up to three years after the due date that an annual return is filed correctly.

• • An assessment can occur up to 6 years after filing if over 25% of the income is believed to be missing on a filed return

• • If a tax return is never filed, or proof of filing is missing with the IRS, an assessment can occur indefinitely (Note: keep all your tax documents for this reason!)

• • An assessment can occur indefinitely if a fraudulent return is suspected

• • Supporting documents for a return can be scrutinized for up to three years after proof of filing a return unless fraud is suspected

With these in mind let’s look at document destruction timelines for old tax documents and other sensitive financial information.

2. Shred immediately

Sensitive Information that can directly or indirectly identify an individual is personally identifiable information (PII). It’s best to protect records with this type of information by destroying or securely filing them away. Examples of PII are name, address, phone number, email, social security number, etc. It’s good to note that a combination of information can also be sued to uniquely identify a person such as race, birth date, gender, eye color, etc. Unless needed for personal or business tax records at a later date shred the following immediately to safeguard PII.

• • Credit card statement once paid

• • Utility bills once paid

• • Bank or ATM receipts

• • Insurance offers

• • Preapproved credit offers

• • Old drivers licenses

• • Used medication labels

• • Junk mail with PII shown

• • Event or travel tickets after use

3. Shred after one year

Keep personal documents you may need to refer back to later during tax preparation for at least one year after filing your return. Some records include the following:

• • Pay stubs after verifying your W-2

• • Medical bills once closed

• • Canceled financial transactions such as a check

• • Old proof of insurance (vehicle, homeowners, personal belongings, etc.)

• • Social security statements

• • Bank statements

• • Visitor logs

4. Shred after three years

Given the three-year statute of limitation discussed previously, a person can reasonably destroy supporting personal documents for returns filed more than three years ago. Again, this assumes you still have proof of filing and that that concern of the six-year rule for tax purposes does not apply to you. If so, here are some examples of financial documents to destroy after three years of filing a return:

• • Wages paid and taxes withheld (W2)

• • Mortgage interest statement (1098)

• • Freelancer or independent contractor statements (1099)

• • Investment distributions

• • Purchase receipts

• • Proof of donations

• • Retirement contribution records (IRA, 401K, etc.)

5. Shred after six years

While three years is the safe window for record-keeping for most situations, if more than 25% of income is believed to be omitted from a return, the IRS may investigate further and require proof. If this concern applies, consider keeping all three-year financial records for at least six years. For this reason, consider keeping at least major receipts, deductions, and income statements for six years.

• • Major receipts if the six-year rule applies

• • Major business expenses if the six-year rule applies

• • Income statements verifying accurate reporting of gross income

6. Shred after seven years

One year beyond the six-year mark of filing is a relatively safe period to destroy old tax records, however, tax returns are best to keep as long as you can in case the IRS one day claims you didn’t file and requests a copy. At 7 years shred:

• • Closed account documents

• • Debt deduction documents

• • Tax deduction records

• • Rental agreements and leases

7. Shred after ten years

If in doubt, you’re probably safe to shred or destroy old documents, both personal and business over 10 years old. The IRS cannot pursue collection on tax liability after 10 years. This again assumes a return was filed so keep those returns beyond 10 years.

8. It depends: shred when it’s gone or the problem is fixed

For some items, the length of record keeping depends on the sale or resolution of an issue such as:

• • Vehicle titles until sold

• • Home deeds until sold

• • Home improvement receipts to help offset capital gains taxes at the time of sale

• • Disputed medical bills until resolved

• • Disputed utility bill once resolved

• • Any receipts for items with actively extended warranties

9. Never shred

Sensitive documents, major life documents, personal milestone records, and critical reference documents should never be destroyed, but rather safeguarded in a secure filing cabinet, or home safe. Example include:

• • Tax returns (recall an assessment can occur at any time if the record of a filed return is missing)

• • Birth certificate

• • Medical records

• • Family death certificates

• • Social security card

• • Passports

• • Marriage certificates

• • Military records

• • Education records

• • Will and trust documents

Let us help with your next shredding job

Shredding reduces identity theft as thieves can’t get information that does not exist. Getting on schedule for a consistent shredding service helps greatly reduce the risk of an identity thief accessing your personally identifiable information. If you have questions about preventing identity theft or want to learn more about document destruction services, give us a call!

References:

1. 1. How Long Should I Keep Records: https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
   2. A Pack Rat’s Guide to Shredding: https://consumer.ftc.gov/consumer-alerts/2015/05/pack-rats-guide-shredding
   3. Guidance on the Protection of Personal Identifiable Information: https://www.dol.gov/general/ppii
   4. Section 5.1.19 Collection Statute Expiration: https://www.irs.gov/irm/part5/irm_05-001-019