Ethan Riley
Whether you need to keep bank receipts depends on the purpose of the transaction and the type of record-keeping system you use. For tax purposes, federal tax rules require you to keep receipts and other records that support items on your tax return for as long as the IRS can assess additional tax, which is typically up to six years. Many tax advisors recommend keeping tax records for about seven years. For major purchases, it is advisable to keep the original receipt with the user manual or warranty information. Records relating to property, assets, and improvements should be kept until the period of limitations expires for the year in which you dispose of the property. For business transactions, supporting documents such as receipts are necessary to substantiate purchases, sales, and expenses. These documents should be kept in an orderly fashion and may be stored electronically or in hard copy.
| Characteristics | Values |
|---|---|
| How long to keep bank receipts | Keep receipts for 3 years for tax purposes. Keep receipts for 7 years if they support your tax returns, such as charitable contributions or tax payments. Keep receipts for expensive items under warranty or for insurance claims. Keep receipts for home purchases or sales, renovations, or other improvements to a property indefinitely. |
| How long to keep bank statements | Keep monthly bank statements for at least the current year. Keep bank statements for 7 years for tax purposes. Keep either a digital or hard copy of your monthly bank statements going back the past 12 months. |
| How long to keep cancelled checks | Keep cancelled checks for 7 years if they support your tax returns. Keep cancelled checks indefinitely for home purchases or sales, renovations, or other improvements to a property. |
| How long to keep tax records | Keep federal income tax returns forever. Keep records that back up information in your federal income tax returns for 7 years after submitting your return. Keep records for 3 years if you don't apply for credits or refunds and the IRS doesn't assess additional tax. |
| How long to keep records related to assets | Keep records related to property until the period of limitations expires for the year in which you dispose of the property. Keep records for as long as you own the asset. |
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What You'll Learn
For tax purposes
You should keep these documents in an orderly fashion, such as organizing them by year and type of income or expense. It is recommended to keep supporting documents that show the amounts and sources of your gross receipts. For example, if you are a manufacturer, this would include the cost of raw materials purchased for production.
The length of time you should retain these records depends on the situation. Generally, you must keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. However, in certain circumstances, the IRS may require you to keep records for up to six years or even indefinitely. For instance, if you claimed a deduction for worthless securities or bad debt, you should keep records for seven years. Employment tax records must be maintained for at least four years.
It is important to note that the IRS does not always require physical receipts. They accept digital forms of proof, such as bank and credit card statements, for your write-offs. Additionally, if your expense is under $75 (with the exception of lodging), you do not need to provide "documentary evidence" such as receipts or bank statements. However, for expenses over $75, it is recommended to keep the receipt and maintain extra proof, such as emails or calendar events, to substantiate the business purpose.
To ensure your records are easily accessible and organized, you can utilize accounting software or a receipt-tracking app. Additionally, consider establishing a consistent schedule for reviewing your records and always keep digital backups to safeguard against loss.
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For proof of payment
A receipt is a confirmation of payment and proof that the customer has paid the amount due. It typically includes the date, vendor details, and the total amount paid. However, in the absence of a receipt, other forms of proof of payment may be required.
Additionally, for business expenses, the Internal Revenue Service (IRS) requires records showing what was purchased, when it was purchased, and the amount spent. This can include bank or credit card statements, cancelled checks, or other documents reflecting electronic funds transfers. For business travel, meals, and gifts, the IRS does not require documentary evidence for expenses under $75. However, it is always beneficial to keep additional proof, such as emails or calendar events, to substantiate the business purpose.
In certain circumstances, such as claiming travel expenses or processing rebates, proof of purchase is necessary. While a receipt is typically required, a credit card statement or confirmation email may be accepted in its place if the original receipt is lost.
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For business transactions
While it is not always necessary to keep physical receipts, it is important to have some form of proof for tax write-offs. The IRS requires records showing what was bought, when, and how much was spent, and this can be in the form of bank or credit card statements, not just paper receipts. Digital copies of these records are sufficient to meet IRS requirements, and they can be stored in categorized folders.
It is worth noting that there are certain expenses that require more documentation. For example, for business travel, meals, and gifts, the IRS requires "documentary evidence" for expenses over $75, such as receipts or extra proof like emails or calendar events to substantiate the business purpose. Additionally, for lodging expenses while travelling, a receipt is required even if the expense is less than $75.
It is recommended to keep business receipts for at least three years, and in some cases, the IRS may require receipts to be kept for up to six years.
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For property records
When it comes to property records, it is recommended to keep them for as long as you own the property and for a few years after you sell it. This is because tax implications can hinge on past events, so the length of time you need the records depends on when the tax impact happens. For example, when selling a home, you need to know your basis (purchase price + home improvements). If audited, you may need to provide documentation from previous years, even if you no longer own the property.
The IRS recommends keeping supporting tax documentation for three years after filing the related taxes. However, the IRS can go back up to seven years if there are suspicions of underreporting income or incorrect debt write-offs. Financial experts recommend keeping records for seven years after the home sale, considering the IRS's timeframe for audits. The IRS has three years to audit your return if it suspects any good-faith errors, and six years if it believes you underreported your income by at least 25%.
It is important to keep records relating to property until the period of limitations expires for the year in which you dispose of the property. These records are necessary to figure out any depreciation, amortization, or depletion deduction, and to calculate the gain or loss when selling or otherwise disposing of the property.
Property records that you should keep include:
- Receipts for capital improvements, such as renovations, additions, major repairs, upgrades, and energy-efficient improvements.
- Records of rental income and expenses, including receipts, cancelled checks, and payment confirmations.
- Purchase-related documents, such as closing statements, purchase invoices, sale invoices, appraisals, valuations, and proof of payments.
- Records of securities trading, including purchase confirmations showing the date, quantity, and price.
- Employment records for live-in help, such as Form W-2s, Form W-4s, and pay and benefits statements.
- A list of household possessions, including photographs of valuables covered by an insurance policy.
- Proof that your home was your primary residence, such as utility bills, voter registrations, and prior tax returns.
You can choose to keep your property records in paper or digital format, whichever works best for you. Paper records are easy to maintain but can be bulky and susceptible to damage. Digital records can be protected with passwords and stored in cloud-based options to ensure they are never lost.
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For major purchases
If you have made a large purchase, such as a boat or RV, you have the option of deducting your sales tax when filing your federal tax return instead of deducting your state and local income tax. In such cases, you will need to keep the receipt for seven years, which is the time period during which the IRS can audit your return.
Additionally, if the product comes with a warranty, it is advisable to keep the receipt until the warranty period ends. If there is a chance you will need to return a product, keep the receipt until the return window closes.
It is worth noting that the IRS does not always require physical receipts for tax deductions. Bank or credit card statements can often serve as documentation for purchases. However, there are exceptions, such as travel, transportation, entertainment, charitable donations, and mileage, where original receipts are typically required.
To summarise, for major purchases, it is important to keep the relevant receipts, user manuals, warranty information, and loan papers. These documents should be retained for as long as you own the asset or until any warranty or return periods have expired. Additionally, for tax purposes, certain receipts may need to be kept for up to seven years.
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Frequently asked questions
It depends on the type of transaction and the type of record. For example, if the receipt is related to a home purchase or sale, it is recommended to keep it indefinitely. For tax purposes, federal tax rules require you to keep receipts and other records that support items on your tax return for as long as the IRS can assess additional tax, which is typically up to six or seven years.
Bank statements are recommended to be kept for at least one year, and then shredded once reconciled with an annual statement. However, if needed for tax purposes, they should be kept for around seven years.
It is important to keep records of major financial events and purchases. This includes documents related to your house, vehicle, investments, and other assets. For major purchases, it is recommended to keep the original receipt with the user manual or warranty information.
You can store your financial records in a secure place, such as a home safe or a safe deposit box at a bank. You can also store records electronically, but be sure to back up your data and periodically transfer it to new media as technology becomes obsolete.
