How long should you keep law firm tax files?

Jul 28, 2018

Gathering tax documents is such a joy. Having to store the documents for several years is even more joyful. How long do you need to wait before getting rid of tax documents?

Suggested Retention

  • Tax returns, supporting schedules, and W-2s should be kept forever.  The documents may be needed to prove earnings and credits when applying for social security.
  • Receipts, bank statements, and other supporting documents should be kept for at least six years.  If the IRS accuses you of under reporting income, they can audit six years of tax returns.
  • Documentation for fixed assets, depreciation, and amortization should be kept for six years, but the receipt date is effectively the date the asset was sold or disposed of.

When does the Clock Start?

The six year retention clock starts on the due date of the filed tax return, not the date on the receipt.  If a tax return is extended, the retention period begins with the due date for the extended return.  To make things simple, the last possible due date for tax returns is October 15 of the following year.

Examples

  • General Documents – Starbucks receipt dated January 4, 2014.  Law firm extends 2014 tax return and files on July 23, 2015.  The retention clock starts October 15, 2015, which is the due date of the extended return.  The documents must be kept for an additional six years, which means you can throw out the receipt on October 16, 2021.
  • Fixed Asset Documents – Law firm purchased an unsubsized iPhone 6 Plus for $$1,026 on September 19, 2014.  The phone is subject to depreciation because is costs more than $500.  The phone was destroyed in an unfortunate bathroom accident on October 31, 2016.  The disposal was recorded on a tax return that was filed before the April 15, 2017 due date.  The documents must be kept for six years from the April 15, 2017 tax due date, which means you can throw out the receipt on April 16, 2023.

Do Tax Document Retention Policies Matter?

We scan and electronically archive all of our documents.  With electronic file storage costs nearing zero, it’s actually more expensive to actively remove old files from documents from the servers.

Stay connected with news and updates!

Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.

We hate SPAM. We will never sell your information, for any reason.