The end of the year is a good time to go through your files, pack away the current year, throw out what you don’t need, and set up your systems for the new year. Here are some guidelines to help you with the process.
There are a few issues you should be aware of. The document retention limit for tax returns is generally said to be three years. That’s only correct if those records have no effect on any other year. Records that prove basis, or investment of any kind, must be kept until that asset, and any trail leading to it, or from it, are extinguished by disposal of the asset.
Another misconception is that payroll taxes share the same record retention guidelines as income taxes do. They don’t. Payroll Taxes can be questioned up to ten years after the fact. State Property Tax and Real Estate Tax records may vary from State to State but I would recommend keeping them forever, or until you’ve disposed of every asset in any trail passing through a given document.
In summary, standard expenses like your telephone bill, heat, office supplies, inventory, etc. can be disposed of based on a three year from date of filing age but that’s about it. Take great care with other documentation because you may very well still need it.
Here’s a link to a great resource from the IRS: http://www.irs.gov/businesses/small/article/0,,id=98513,00.html
