How Long Should I Keep My Records?

Two of the most common questions that are asked on me are, 'What information do I keep?" and "How long should I keep it?"

Individual Taxpayers
Canceled checks do not prove an expense! Tax payers should keep invoices, paid receipts, credit card bills etc. to support their deductions.
As for how long... the statute of limitations is three years for personal income tax returns. My personal recommendation is to keep your personal records for five years to avoid all possible problems that might arise.  

Business Taxpayers
There is more information and paper that must be kept for a business and it does not all fit nicely under one time period.

Keep 1 Year
Bank deposit slips
Bank reconciliations
Purchase orders
receiving sheets
Stockroom withdrawal sheets.

Keep 2 Years
Voting proxies

Keep 3 Years

Insurance policies
Petty cash slips
Correspondence

Employment applications

Internal reports

Keep 5 Years
Internal audit reports
Computations for excise taxes

Keep 7 Years
Payroll records and documents
A/P and A/R ledgers
Customer invoices
Vendor invoices
Inventory records
Contracts and leases
Canceled checks
Sales records

Permanent Records
Deeds and mortgages
Cash ledgers
Credit history
Property appraisals
Major contracts and/or leases
Accountant's reports
Insurance records
Journals
Financial statements
Minute books, By-Laws and Certificate of Incorporation
Tax Returns
General Ledgers

The permanent records list is usually kept my most business, but it is the list under the number of years that confuses most businesses. To make life easier, (but maybe more cluttered) I suggest keeping everything for a period of seven years.