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September 19, 2021

How’s your record-keeping?

Well-organized financial records will save you time and money
not only in accounting fees, but also in taxes. You need a system
that will help you retain important paperwork and minimize the
clutter.
Well-organized financial records will save you time and money not only in accounting fees, but also in taxes. You need a system that will help you retain important paperwork and minimize the clutter. Here are some basic guidelines.

Tax records – You should keep tax records for at least as long as it is possible for the IRS or other tax authority to audit your return. Generally, the IRS has three years after the return is due or filed, whichever is later, to examine your return and assess additional tax. This is called the “statute of limitations.” If you’ve made a major error on your return (defined as omitting more than 25 percent of your gross income), the IRS has six years to examine your return. To be on the safe side, keep your tax records for seven years after a tax return is filed. There is no statute of limitation for fraudulent filing or for returns that are not filed at all.

The IRS does not require that you keep your records in any particular way. The only requirement is that you keep your records in a manner that allows you and the IRS to determine your correct tax liability. Keep checks, receipts, and other records that document the income and deductions you reported on your tax return. Copies of tax returns themselves should be retained permanently.

Investment records – Investment records generally should be kept until the investment is totally liquidated, plus a period of seven years. You can usually toss monthly or quarterly investment statements if you receive a comprehensive annual statement.

Other records – Important records, including vehicle titles, wills, trust documents, insurance policies, contracts, and birth and marriage certificates, should be kept in a safe place. An inventory of your valuable property, along with photographs or a video, should be made and kept current in the event your house is robbed, damaged, or destroyed.

Before you discard documents, review them for their importance. Call us if you have questions about retaining records.

Bob Bianchi is a CPA and partner with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister and in Morgan Hill.

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