Can I dump any of these old tax records yet?

Photo: Patpitchaya. Used with permission.

You and I are in the full-on, tax-season sprint between Groundhog Day and the filing deadline. The big question pops up as you try to find a place to store the newly ended year's financial receipts while you're staring at a room full of boxes of prior years' money records, 'Can I get rid of any of this old stuff yet?' Other versions of the same question:

• How do I know how long to keep records?
• Why do I need all this paper?
• Can't I just shred it?
• Can I just convert it to digital images?
• It's all in my QuickBooks, so I don't need the receipts any more, right?

All the questions and....so many rules. The simple answer from an office management point of view is that it is less expensive to store it then it would be to re-create in an audit. You throw out an old box and you could be throwing away hours or days – or longer – tracking down a duplicate somewhere. So, err on the side of caution. If you are ever in the position to try and find room in the budget to pay attorneys and accountants to defend an audit, the storage bill won't even compare!

Audit's are time consuming and expensive, especially if you end up in a position of defending a position that you can't prove. An auditor can do his/her best to create an estimate of what happened based on their best assumptions, and it's up to you to prove it differently.

For example, if you move money between accounts, they possibly could be viewed as two deposits , not a deposit and a transfer of the same money. The end result if the transfer isn't clear is that it could be counted as unreported income. The paper trail, even in the digital/paperless age, is still important! Just because it's entered into your software doesn't mean you won't need that dead-tree receipt (or at minimum an image of that receipt) in the future.

My general rule of thumb – always check with your CMA or CPA as they know your specific business situation – but generally, if in doubt, keep records at least seven years. Minimum. If you signed it, definitely keep it. There are some things like prior audits, prior returns, property transfers, and other vital documents, you keep forever! There are record types which generally are not audited after four years, but unless you hear it from the CPA, keep everything an extra couple years. You'll avoid headaches in the unfortunate event of an audit.