You’re likely just about done with your business taxes. If you’re like most of us, you can’t wait to toss that mound of last year’s paperwork into a big box and hope to never look at it again. Before stashing it in the back of the hangar with the last 10 years’ worth of paperwork, consider purging some of your financial clutter by condensing it to a disc, sending it into the cloud, or shooting it through the shredder.
Since the IRS readily accepts electronic versions of documents, why are many of us still so afraid to give up the leaning tower of banker boxes? While you may not want to go completely paperless, it’s not necessary or secure for you to keep hanging on to so many dead trees. Paper seems just to call out to be ruined by water, heat, or even critters (don’t ask me how I know this), or sometimes even infiltrated by unwanted prying eyes. Also, if you’ve ever kept a receipt for any length of time, I’m sure you’ve noticed that on many of them the ink fades or completely disappears. Since you must keep proof of purchase as supporting documentation for your tax returns for years, it just simply won’t do to pull out your tax file for the IRS auditor only to show a pile of blank slips of paper. And if you’ve heard that keeping them sealed in a plastic storage baggie will keep the ink from disappearing, let’s just say that rumor isn’t true.
The best way to safely store documents and ensure they’ll be readily available to you with a few clicks is to store them electronically by either downloading or scanning them. Some stores, such as Sears, now give you the option not only to print your receipt, but to email it to you as well. Most banks and credit card companies provide statements that can be downloaded for free, as well as free online access for one to 10 years. NeatDesk offers nifty scanners that even come with software to help you stay organized and save you time. Don’t want to buy a new scanner? Cost-effective software programs, such as Paperport, work with virtually any scanner to create PDFs, organize, and store any type of document.
Even if you aren’t willing to go electronic and insist on clinging to your paper, consider scanning and storing copies of essential documents off-site in case the physical copies are destroyed. Make sure you are making regular backups and keep one copy at an off-site location at all times, such as a safe-deposit box or even in your desk drawer at home, in case your office experiences a disaster; better yet, use cloud computing or one of the ultra-secure online services such as Mozy or Carbonite to store your data, which allows you to retrieve your documents from anywhere, even from your mobile device.
How long should you maintain copies of documents? Seven is the magic number, although general opinion is that the biggest risk of audit is in the first three years after a return is filed. The IRS can audit you up to seven years later if it suspects you underreported your income; however, if it suspects you committed fraud or failed to file a return, there is no limitation.
Here are other types of documents you should keep:
Since you might need someday to detail your income and expenditures for insurers or creditors, or find that sales receipts may help to justify the value of your school should you ever decide to sell, it may actually be in your best interest to keep the receipts for as long as it is practicable to do so.