| Posted by: Doug Gerlach |
5/7/2007 8:13:00 PM |
Gary M. asks "How long should the treasurer retain the club records, monthly statements, tax returns, etc., for an investment club?"
Dear Doug,
How long should the treasurer retain the club records, monthly statements, tax returns, etc., for an investment club?
- Gary M.
Dear Gary,
In general, you should be prepared to keep seven years' worth of financial records for your investment club -- just as you would for your personal records. The Internal Revenue Service has six years to challenge a return if they believe that you underreported your gross income by 25 percent or more. If the IRS suspects good faith errors, then they have three years from your filing date to audit a return. There is no time limit for IRS audits if you failed to file a return or filed a fraudulent return. So while you could decide to keep all tax returns, bank statements, brokerage statements, canceled checks, and receipts for four years, you'll probably want to keep these documents for seven years just to be safe.
One important exception to this rule is the details of security transactions. The four/seven year clock doesn't start ticking for securities until the time at which they are sold. You must hold onto the records for securities that your club currently holds, no matter how many years ago the club might have purchased those securities. These might be sale or purchase confirmations, brokerage statements, or annual summary statements. Without these records, you can't prove to the IRS the amount of capital gains or losses that your club has incurred.
Increasingly, banks and brokerage firms are providing electronic versions of statements, so you might decide to go the paperless route. Even if you don't receive electronic statements, if you can print a statement from a financial institution's web site, you can save an electronic copy for yourself by using a PDF writer program to create a PDF file of each month's statement. I like DoPDF as a free PDF creator program for Windows. Just install the program and it appears as a printer on your computer -- when you print a web page or document to DoPDF, it saves the item as a PDF file.
One caveat if you do decide to go the electronic route: if you save these files on your computer only, and your computer is destroyed or crashes, your electronic files may disappear. Make sure to store a backup of these files in a safe place (such as a bank safety deposit box), perhaps on a CD-ROM file along with your Club Accounting program backup files.
- Doug
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