keeping client records

[oceanlovin'ea]

I had a discussion last weekend with some other EA's regarding how long to keep copies of clients records and tax returns.

How long do you think we should keep copies of tax returns? I have not kept actual copies for the last 2 years. I have the returns on my tax program and on backup drive. But I also have paper copies of returns.

How long do you think we should keep copies of records from bookkeeping clients? I have "copies" of things but they have the original. I have my work papers.

How about payroll records? Quarterly reports?

Thanks. I have to get rid of some of this stuff. I'm running out of space.

Linda

[taxmandan]

I don't keep printed copies of tax returns, just the software data and three .pdf copies in backup. Clients' copy is the only printed copy of tax returns, same with other payroll records etc. Source documents are scanned and all are returned to the client with copies of tax forms, like 941s, 1040. I have electronic copies of everything going back 5 years now, it's easy to store on encrypted DVDs.

[taxea]

IRS requires us to keep client records for 5 years, businesses to keep records for 5 years.
I keep client returns and doc copies permanently on USB external drive permanently because I have experienced that the IRS frequently asks for returns they are auditing. They are also needed in OIC cases.
I keep the last three years on my harddrive for ease of doing amended returns.

Hope this helps

[ChEAr$]

Accounting records

Since I do monthly accounting work for clients, the journals, ledgers, payroll records etc are client property. I have no "working papers" in the sense a CPA might deem audit records. Everything belongs to clients who don't give a hoot about having them on premises. Thus my back room has a file cabinet with four year's worth for clients. Since the cabinet only has four drawers, four years is enough!
Every January I clean out the oldest drawer, package the records in big envelopes, mark the year and seal 'em up and hand over to the client, remarking that "I hope we never have to unseal these."

I quit keeping tax returns maybe 10 years ago since the Taxwise files were constantly backed up and kept off site. But now that i'm with Drake, a .pdf copy will be automatically generated and filed away in Drake's proprietary file cabinet.

[Jiggers]

5 Years?

IRS requires us to keep client records for 5 years

IRS requires 5 years of records?

I think this is 3 years.

[ChEAr$]

IRS requires 5 years of records?

I think this is 3 years.

Well, that's debateable. The three year rule is for ordinary income and receipt items, since IRS can only go back three years on a filed return. However, there is some little statement somewhere in the regulations which commands in words to the effect: "....as long as they (the records) may be material to a tax matter....."

Another reason I use four years for client books is that payroll records must be kept four years, i.e. W4 forms, W2 form information, etc.

[Jiggers]

My records, not clients

Well, that's debateable. The three year rule is for ordinary income and receipt items, since IRS can only go back three years on a filed return. However, there is some little statement somewhere in the regulations which commands in words to the effect: "....as long as they (the records) may be material to a tax matter....."

Another reason I use four years for client books is that payroll records must be kept four years, i.e. W4 forms, W2 form information, etc.

I was referring to my records, my copies of tax returns. All original documents are returned to the client.

I advise them to keep them until one day after the IRS needs them.

Seriously, three years, plus three, and if there is something on that return, such as a depreciable assets, keep for the 3 + 3 after it is disposed of.

[PIGLEE]

One more thing to keep in mind when keeping records. THE STATE. In AZ they have one more year (than the federal) to adjust a return. I don't know how many times they have waited until the last minute to send a letter to clients.

[JG EA]

http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
3. You file a fraudulent return; keep records indefinitely.
4. You do not file a return; keep records indefinitely.
5. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
7. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

There's more at this page.

What I do - not that it matters what I do, but ...I distroy prior client's files in 3 years from the due date (in June) and keep current client files forever. I've needed old, old things many times. I also keep some at least 7 years for prior clients that I deem "worthy of worry" - for proof of what I did.

[Kram BergGold]

My take

I have a paper copy of all current clients since day 1. Once someone leaves I keep their returns for 3 years. Why? I picked up a client last year. In 1999 or 1998 his parents put $2,000 into an IRA for him. The parents tax pro does not have paper copies back that far and can no longer access the computer files from that long ago. So no one knows if the IRA was ever deducted. The other reason is to be able to check depreciation when an asset like real estate is sold. I know that a 15-20 years ago my software messed up the accumulated depreciation.

[taxea]

good reference here

https://www.cpa.net/resources/retengde.pdf

[taxxcpa]

One kind of return to keep

One kind of return that you need to keep indefinitely is one showing land cost on a fully-depreciated building. If it is eventually sold, you will need the cost of the land.

[oceanlovin'ea]

Most interesting

This has proved most interesting.

I wish I could keep copies for my clients forever but my space won't permit me to do that. I have a few clients that I am keeping all their returns that I have done.....just in case, I need to see the backup,etc.
I am keeping from 2006 on. Although I haven't printed out paper copies of returns for the last 3 years now. But I am keeping all my work up sheets so I there was a question I could go back. Interestingly, I am looking at back paperwork and wonder what I meant. So I will take much better notes when interviewing clients from now on.

I am keeping all bookkeeping info, most of it is newer than 5 years though.

I am really doing a cleaning job. No one will recognize my office when I am done. But my office will look so much more professional. I will have so much more time since I won't spend it looking for stuff.

Thanks.

Linda

[Davc]

One kind of return that you need to keep indefinitely is one showing land cost on a fully-depreciated building. If it is eventually sold, you will need the cost of the land.

You also need it to keep track of the depreciation on the building so you no how much is UR1250 gain and if old enough, possible recapture of 1250 or 1245 gain when sold.