Your Documents: When to Hold ‘Em and Fold ‘Em

If one of your resolutions this year involves cleaning out your office or tidying up your desk, there are a few things you should keep in mind.

Following is a quick tutorial to help you decide what to hold on to and what to toss – and the risks involved:

There are three basic rules to follow.

Rule 1: When in doubt, do not toss it out. It’s better to be safe than sorry when it comes to record-keeping. Retain anything you think might be needed in the future.

Rule 2: Seek professional assistance before making a final decision. All of the information in this tutorial has been derived from the basic IRS Regulation – 26 CFR 1.6001, The Guide of Record Retention Requirements in the Code of Federal Regulations. However, things change and this may or may not apply to your specific situation.

Rule 3: See Rule 1.

Now that we have covered the basics, here are a few pointers to get started.

Tax-Related Documents

Tax returns should be kept for at least seven years, along with all supporting documentation, receipts and other information. Additionally, according to the Materiality Rule, any books and records used in the computation of any tax should also be kept. For example, receipts demonstrating a depreciation schedule may need to be stored longer than the regular seven-year period. This applies to both individual and small business tax returns.

Accident, Injury and Other Health,
Safety or Administrative Information

tax forms retentionMost documents should be retained for at least seven years or until settled, although a few items can extend beyond that date. Pension plan agreements, profit sharing plans and personal files for anyone currently providing services should be kept permanently or until the status changes. Other items, like old applications of non-employees, tax forms retention, garnishments, old insurance policies and other time-limited data, can usually be safely discarded in five to seven years.

Insurance Documents

Expired insurance policies should be kept for 10 years, while appraisals, safety records and other ancillary reports can typically be discarded after six years.

Permanent Retention

A significant number of items should never be discarded, but remain with you permanently. They include medical records, birth and death certificates, wills, trusts, military papers, changes to corporate structure, life insurance policies, deeds, and other forms of ownership, both individual and business related.

Special Considerations

Record retention is an important part of your risk planning. Without the right records, it is nearly impossible to prove your point should a claim arise.

One way to reduce the clutter and still retain required documents is to use a scanner to digitize important documents.

However, not every entity will accept copies of the original, so ask your insurance agent in advance.

Should you opt to go this route, be sure to scan both sides of each document and use redundant storage, including an off-site location that is secure and up to date.