How Long Should One Save Bank Statements for Self-Employed Individuals?
When it comes to saving bank statements as a self-employed individual, it is recommended to keep them for a significant period. This is particularly important for tax purposes and legal documentation.
IRS Guidelines for Bank Statements
According to the Internal Revenue Service (IRS), in the United States, bank statements linked to tax-related transactions should be retained for at least seven years. This rule applies to those who opt for the “3-year statute of limitations” for pursuing audits. However, for documents such as payments related to alimony or child support, retention should extend beyond the individual's lifetime or until the children and their ex-partner’s lifetimes.
Retention for Significant Assets
For assets that were purchased and held for a long time, such as houses, businesses, stocks, and bonds, it is advisable to maintain records of these transactions for as long as you still own the assets. This ensures that there is a history and record of your investment decisions, which can be valuable for financial oversight and potential legal disputes.
Online Bank Statements
Today, many individuals store their bank statements online, as these can be easily accessed and stored in a digital format. While it is tempting to keep these statements indefinitely, it is important to back them up and secure them to prevent data loss or unauthorized access.
Proof of Tax Claims
Bank statements can serve as crucial proof of income and expenses for your Federal tax return. However, if your concern is a federal tax audit, there is no general rule dictating how long you should retain your documentation and checks. Most importantly, the IRS has a limit of three years from the date you filed your tax return to audit it. However, if you file an amendment or face other issues, this period can be extended.
UK Financial Regulations
From a UK perspective, the "statute of limitations" stipulates that legal actions for contract disputes must be initiated within six years from the date of the contract's formation. However, special circumstances, such as fraud, can extend this period. In the event of such situations, it is advisable to report to the police, who can handle the case. UK banks are legally required to keep copies of client accounts, including vouchers, for ten years following the transaction, primarily for criminal investigations.
Modern Digital Management
Statements are no longer stored in physical micro-fiche or on paper but are often stored digitally. Most UK courts, including the County and Crown Courts dealing with serious fraud cases, accept certified electronic copies. Storing documents in a secure digital format is crucial to access and preserve them over time.
Conclusion
Self-employed individuals should adhere to the relevant guidelines set by the IRS and UK financial regulations to ensure compliance and protect their interests. By keeping a thorough record of bank statements and other financial documents, individuals can better manage their finances and avoid potential legal issues.