Fearing an IRS audit, people have been known to keep every shred of paper, going back decades. Professional organizer, Regina Leeds says that while there are financial documents you should keep for life, most only need to be kept for three years or less.
Safe to Shred
Unless it shows proof of a deductible expense, many documents and receipts can be shredded monthly or annually, says Leeds. For entrepreneurs, these include:
- ATM receipts and deposit slips after they’ve been reconciled with your bank statement
- Monthly and quarterly bank statements if year-end statements are received
Keep for Three Years
Material that supports tax returns should be saved for three years. Leeds says this might include:
- Income-related documents, such as invoices, cash register tapes, credit card charge slips, bank deposit slips, 1099s and W2s
- Proof of deductible purchases and expenses, such as receipts, invoices, cancelled checks, mileage logs, and credit card slips or statements
- Receipts for charitable contributions
As businesses become more paperless, receipts and statements are often delivered online. Some information is available for a limited time, however. Make sure you check with your account holder to understand its policy, and save or print documents that might be needed in case of an audit.
While three years is standard, according to the IRS, it can perform an audit up to six years after taxes are filed if a “substantial error” is suspected. In the case of fraud, there is no limitation on an audit. Leeds says if you are worried about being audited beyond the three-year limit, you should hold your documentation longer.
If the IRS has contacted you regarding unpaid taxes, the Lawyer Referral Service of the New Hampshire Bar Association can help with a referral to an attorney who specifically handles IRS tax matters. Call 603-229-0002 or request an online referral. Assistance might also be found through the Low Income Taxpayer Project.