Tax season is upon us, and it’s the perfect opportunity to get your files in order and get rid of documents you no longer need. But which documents should you keep and which can you shred?
Tax Returns & Documents
Federal law requires that you keep copies of your tax returns and all supporting documents and receipts for three years. However, if the IRS suspects fraud on your return or thinks you have significantly underreported your income, it can ask for records as old as six years in an audit. To be safe, both Colorado businesses and residents should keep tax returns and documents for seven years.
The IRS expects 90% of taxpayers to file their 2018 taxes electronically rather than mailing their return. As part of the move toward electronic documents, some taxpayers may wish to store electronic versions of their returns rather than paper documents.
In case of an audit, the IRS will accept electronic versions of returns and documents, and suggests scanning paper records into a format that can be encrypted and stored securely on a flash drive, CD, or DVD.
Tax records contain a great deal of highly sensitive information, so when you need to get rid of tax documents older than seven years, or if you plan to convert old tax documents to electronic files, prevent fraud and identity theft and keep your information safe by using a professional shredding service to securely destroy your paper tax documents.
Shredding Guidelines for Colorado Businesses
Tax records are just one of many paper documents your business probably keeps on file. Follow these guidelines for what to keep and what’s safe to shred.
What to keep for one year: It’s always a good idea to keep ALL business records for at least a year. Some records are less important and can usually be discarded after a year. These include receipts for smaller business purchases, purchase orders, delivery receipts, deposit slips, and other transaction records.
What to keep for three years: More important business documents that you might need to refer back to at a later date should be kept for at least three years. These include employment records for terminated employees, employment applications and resumes, expired insurance documents, and correspondence not related to current business.
What to keep for seven years: Colorado businesses should keep significant records related to ongoing business for at least seven years before having them professionally shredded. These include accident reports, documents related to lawsuits and insurance claims, accounts payable ledgers, cancelled checks, expense and travel reports and receipts, payroll records, and expired contracts.
What to keep forever: There is no official federal or Colorado law that requires businesses to keep documents forever, but when you run a business, keeping important documents is a good practice. Businesses should permanently store profit and loss statements, annual reports, financial statements, meeting minutes, corporate charters and bylaws, business formation documents, audit reports, current contracts, deeds, mortgage documents, property records, retirement and pension records, and trademark and patent registrations.
Shredding Guidelines for Colorado Residents
What to keep for one year: It’s a good idea to keep almost all documents for a year, except things you’re sure you’ll never need to refer to again. Keep credit card receipts, cancelled checks, ATM and bank transaction receipts, pay stubs, Social Security statements, monthly and quarterly statements for investments, IRAs, and 40k(k) accounts.
What to keep for three years: Receipts for major purchases, medical records and bills, and expired contracts and insurance policies.
What to keep for seven years: Documents related to a real estate or vehicle sale, loan payoff documents, accident reports, any tax-related bills or receipts.
What to keep forever: Current insurance benefits documents, retirement records, active contracts, legal records, health records for major procedures, annual statements for any current investment accounts, IRA contribution records, documents for loans you’re still paying off, and receipts, documentation and warranty information for all major purchases you still own, including cars, appliances, etc. You should also keep all records related to homes you still own, including mortgage statements, repairs, inspections, maintenance, and improvements.
Obviously, anything related to your identity should not only be kept indefinitely, it should be securely stored so the information is never compromised. These documents include adoption papers, birth certificates, Social Security cards, diplomas, certifications, licenses, citizenship papers, military discharge papers, marriage licenses, divorce decrees, estate planning documents, wills, power of attorney, living wills, and death certificates.
What to Do with Documents You No Longer Need
Once a document is no longer needed, it should be discarded to keep your home or office as clutter-free as possible, but don’t make the mistake of throwing sensitive documents in the garbage or recycle bin! Doing so puts you at risk for identity theft and fraud.
To keep your information secure and out of criminal hands, have all your unneeded documents securely destroyed by a professional shredding company like PROSHRED DENVER.