SPRING CLEANING 
In the spring, our minds turn to cleaning our house and garage, cleaning our office, and ridding ourselves of unnecessary paperwork and junk. As the rain makes the dirty blackened snow disappear and the trees begin to bud, we want to rid our lives of the excesses that seem to creep onto the tops of our desks and complicate our lives. We all yearn to know: How much of this “stuff” should I save and how much can I safely destroy without regret?
The Internal Revenue Service (IRS) is not the most important reason to keep good business records, but it is the reason that motivates most folks. Some of the information that follows is taken from two IRS publications: #552, “Recordkeeping for Individuals” and #583, “Starting a Business and Keeping Records.” If you want to read more details, I suggest you go to www.irs.gov and click on publications.
In addition to the tax reasons for keeping adequate records, you may need to keep records for insurance purposes or for getting a loan. Everyone who owns a personal residence should have a file or a manila clasp envelope in which to keep a record and receipts for the acquisition of and improvements to the home. The first item in the file or envelope should be the closing statement for the purchase of the home. That document provides the date of acquisition and the cost. After the original purchase, if you make improvements to your home, keep a recap sheet listing each improvement, the date, and the total cost; keep the receipts and backup documentation.
In addition to your home purchase, keep a separate file or envelope for each major purchase of assets such as jewelry, cars, boats, campers, vacation home, rental property, business equipment, stocks, bonds, mutual funds, etc. Each file should be started with the invoice for the purchase, establishing date of purchase and cost. For your business, you will want to have a file for each purchase of real estate and major piece of equipment. You should keep the entire file for each asset for at least three years after you dispose of the asset.
Three years after the filing date of your tax return is the minimum time you need to keep the records pertaining to your income and expenses on your income tax returns. That means that for your 2008 income tax return that must be filed by April 15, 2009, your evidence must be kept until at least April 15, 2012. If you fail to report some income on your tax returns, the length of time is six years after you have filed your return rather than only three years. If you do not file a tax return or you file a fraudulent return, the length of time to keep the records is forever. If you have employees, there are more rules on the retention of employee records; generally, they must be kept at least five years. See IRS Publication 15 for specific employment tax records you must keep.
In summary, many of your records can be destroyed after three years from the date you filed your tax return—things like medical, charitable contributions, property taxes, and vehicle license receipts. It is a good idea to keep these expense receipts in an envelope labeled by year rather than by topic, so when the three years expire, you do not have to go through the file to pull out documents pertaining to the acquisition of assets that you still own. Be careful to shred anything that has identification data on it, such as social security numbers and bank account and credit card numbers.
Jean Kruse
SCORE® Chairperson and CPA (retired)
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Dated April 26, 2009 Topics: Chairman's Message, Tax Info
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