A common question around the office involves records retention. Many people think they need to keep their tax returns for seven years, others think it is three; both are wrong.
Tax returns are not the only records you need to consider when building a record retention policy in your business and personal life. Some items can safely be disposed after one year; some items need to be kept forever—your estate can handle disposal.
Record retention in the past required filing cabinets filled with papers. The filing cabinets can be—and should be—replaced by digital storage. A fire, theft or weather damage put irreplaceable documents at risk when stored in a filing cabinet. A better solution is to scan all documents into a digital filing cabinet and store a backup copy offsite.
Most banks already provide digital copies of statements and your tax preparer should have no problem providing a digital copy of your return. Your tax preparer is required to provide you with a copy of your tax return and it can be a digital copy. Have your accountant email you a copy or bring a flash drive to their office. Also, many accountants have secure drop boxes built into their website now. For security reasons you may wish to use this method over less secure email. Plus, emails are easier to subpoena for court proceeding.
Security is the biggest concern when storing records. The amount of documentation held by a business is huge. Even a modest household can accumulate a serious amount of paperwork they must retain. Digitizing data is fast and simple. Security of this “fast and simple” data is important because it is just as “fast” and “easy” to steal it. Storing data at home or business should be secure behind adequate firewalls, encrypted and password protected. Offsite storage must be with a reputable firm safeguarding your data. The cost of storing data is cheaper than ever so there is no reason not to keep all required documentation and store these records safely.
Below is a handy guide for determining how long you need to keep records. I have added a few notes after some items to clarify certain requirements. It would be a good idea to bookmark this page for future reference. I list personal requirements separately from business requirements. To simplify your search I have listed items by 1 year, 3 years, 6 years, forever, and special circumstances.
It should be noted state requirements can differ from federal requirements. I follow the records retention list with special rules affecting certain states. People filing a tax return, conducting business or own property in these states will need to consider additional records retention issues.
Imagine you had a time machine. You could go back in time and change anything you wanted. A past mistake could be erased, a missed opportunity taken, a relationship saved. If I had such a time machine I would change nothing. I would leave everything exactly as it happened, including all the regrets.
A popular attitude suggests many people would go back in time and kill Adolf Hitler before he committed his crimes against humanity. I wouldn’t. I would let the approximately 60 million people died; I would allow the gas chambers to continue.
Why would I pass a chance to save all those people? Am I really that cold? No, I am not that cold, but I do know everything happens for a reason. If Hitler didn’t do what he did more than a billion people could have died and the human race sent back to the Stone Age.
Imagine a time machine existed allowing anyone to go back and kill Hitler before the nightmare began. Imagine someone bumped off little Adolf when he was a wee tyke. How would human history have evolved differently.
Well, for one, scientists would not have been motivated to split the atom quite so soon. But make no mistake, scientists were getting close to discovering the mystery of splitting the atom. The atomic bomb wasn’t concocted out of thin air when the desire for a big BOOM was needed. No, human knowledge was getting close.
Without Hitler, Germany might have kept her scientists. Germany might have invented the bomb in the 1950s or 1960s without the impetus of war. The United States and other nations would have soon followed.
I’m going to start an investment company. Actually, I’m going to start a whole bunch of’em. Anyone interested in throwing in with the Wealthy Accountant? Read on if you think I am a good investment risk.
As an accountant I don’t want to leave anything to chance. People invest in firms with proven track records that exceed the norms. Therefore, my investment company will start several investments with only my money at risk. Several different strategies will be used to see which ones outperform. Underperformers will be closed without any investor money put at risk.
Before you start shedding tears for me, know I only invested a token amount into each fund. My loses were small and so were the gains. I just needed to know which ideas worked best.
Only the winners will be offered to the public. That means you, kind reader. Only the finest for those reading my blog.
Once the deadbeats are eliminated I can provide paperwork showing the wonderful returns on the winning investments. In fact, every investor from now on will see investments returns that include the numbers when the investment was really small and unavailable to the public.
Since the early, and unavailable to you, outperformance carries the same weight as the future returns when the fund is larger, the investment might have lost money overall and still claim a positive long-term return to investors. In other words, results are not weighted.
Oh, but the Wealthy Accountant knows future returns eventually catch up to a guy. So, I will close funds that take’er on the chin. Nobody wants to see that kind of thing in this investment company. Only survivors get to live on around here. For the laggards: OFF WITH THEIR HEADS!
BOOM! BOOOOOOOM! SKREEEEEE!
Yeah, we just had July 4th here in the states, so did you. The only difference if you live in a country outside the U.S. is we celebrated our Independence Day. Lots of fireworks were involved.
It’s not a one night affair either. Some cites shoot off fireworks a few days early over the weekend, some do it the night before, many do it on the 4th.
Neighbors have the same philosophy. For a week the crack of thunder (well, it sounds like thunder when I’m trying to sleep) can be heard until the wee hours of the morning. As long as nobody gets hurt I’m okay with it.
I don’t participate in the festivities. Laziness is the problem. Many years ago I had a year or so of insanity and bought some fireworks. Some ointment cleared that insanity right up.
Before you call me a prude, play with me. Fireworks take a lot of work! First you run around finding a place where they sell the stuff, then you crack your wallet wide (bend forward slightly—this is going to hurt) and finally you have to plan the event to shoot them off. Like I said, a lot of work and I’m too lazy for all that. It’s much easier to watch what the neighbors shoot off while I sit around my fire pit watching stars between displays.
Ever since I disclosed my net worth broke eight figures strange emails have been coming in. Another milestone was passed without fanfare. Past experience had me used to the lack of excitement financial milestones caused.
A theme among many emails revolved around my rate of return. I never really thought of it that way. It was just a thing that happened because I saved a large percentage of my income and invested the bulk of my excess money in index funds. One commenter said he was impressed because my rate of return over the last 20 years was 11% while the S&P rose only 8.5% per year on average. I don’t know if it’s true; I never broke the numbers down that way. All I care is that it grew to a lot.
What the emails and comments forget when they calculate my rate of return is that I added funds over the last 20 years. If I reached my million dollar goal when I was 32 and never dropped another dime in the kitty my internal rate of return would be impressive. Instead, I added excess funds every year. If I analyzed my real return including the additional invested fund my internal rate of return would be less impressive.