Service Solutions

Wait! Before You Shred Tax Records…

Your file cabinet may have little room left for past tax records. Before you purge past data, BKD, LLP offers a few guidelines to help you get organized without eliminating critical information.

Federal income tax regulations require you to keep records as long as the contents may be material to the administration of the tax law. The retention periods shown in the federal guidelines chart on this page apply to records needed to substantiate your federal income tax return. They are based on the federal statute of limitations, which is normally three years. What does this mean? The Internal Revenue Service (IRS) can audit your tax return up to three years from the due date or the date of filing, whichever is later.

Some state statutes exceed the federal statute or have laws or regulations requiring taxpayers to maintain records beyond the state’s statute of limitations. For guidelines, see state statute chart on this page.

How do you make a decision when state and federal records retention guidelines differ? Maintain your tax records based on the longer of the federal and state requirements. To determine your record-retention schedule, consider keeping indefinitely records that cannot be recreated by any other office, institution or governmental unit.

Special Rules for Computer Records

Record-retention periods are generally the same for machine-sensible records as their hard-copy counterparts. Machine-sensible records include magnetic tapes, punched cards and computer disks.

If you or your business has more than $10 million in assets, then the IRS requires your machine-sensible records to be in a retrievable format. Therefore, you must retain the following documentation for data files:

• Record formats
• System and program flowcharts
• Label descriptions
• Source program listings of programs used to create the files retained
• Detailed charts of accounts
• Evidence that periodic tests are performed on the retained records
• Evidence that the retained records reconcile to the taxpayer’s books and the tax return

If you or your business has less than $10 million in assets, but you maintain accounting records on a computer, then the IRS requires you to conform to the above standards if your books and records are only available in machine-sensible format, machine-sensible records were used for complex computations or you are notified by the IRS your machine-sensible records must be maintained.

Federal Guidelines for Paper Records
Three Years*
	Auto mileage logs (three years or life of vehicle) Bank deposit slips Cancelled checks Daily sales records Entertainment records Expense reports Paid vendor invoices Written acknowledgment from charity for contributions of $250 or more *From date of filing return or due  date of return, whichever is later
Six Years
	Bank statements Contracts (after expiration)
Permanent
	Annual financial statements Corporate stock records General ledger & journals Real estate records Tax returns Copy C of Form W-2 LIFO inventory record
Other
	Depreciation schedules (life of asset, plus three years) Meeting minutes (life of company) IRA contribution and distribution records (three years after final distribution)

Statute of Limitations for BKD States
State	Statute	Regulation Retention
Arkansas	3 years	Arkansas regulations require records be kept for six years
Colorado	4 years	Colorado regulations require records be kept for four years
Illinois	3 years	Illinois regulations do not specify minimum record-retention periods
Indiana	3 years	Indiana regulations require records be kept three years
Kansas	3 years	Kansas regulations require records be kept three years
Kentucky	4 years	Kentucky regulations require records of tax payments be kept for seven years
Missouri	3 years	Missouri regulations require records be kept for four years
Nebraska	3 years	Nebraska regulations do not specify minimum record-retention periods
Ohio	4 years	Ohio regulations require records be kept four years
Oklahoma	3 years	Oklahoma regulations do not specify minimum record-retention periods
Texas	4 years	Texas regulations require records be kept four years

For More Information

Contact your BKD advisor or:
Lisa G. Workman
Director of Tax Services
417.831.7283