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Tax records: What should you keep and for how long?

Deciding which tax record documents to keep and which to shred can be a bit of a guessing game. Some keep every single piece of paper or file in the world and others tend to pitch things faster than they should. All documents are not created equal. Some must be kept longer than others; the deciding factor depends on the action, expense, or event recorded by the document.

Generally speaking, one should keep any records that support the tax return until the period of limitations for that tax return runs out. That time period is decided by the limitations placed on return amendment periods. When that period expires, the tax records documents may be destroyed.

According to the IRS: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

Period of Limitations that apply to income tax returns

  1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
  2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
  3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
  4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
  5. Keep records indefinitely if you do not file a return.
  6. Keep records indefinitely if you file a fraudulent return.
  7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Posted on: December 19th, 2016 by Sheryl Keeme   Income Tax  |  Taxes
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