It’s true that the Internal Revenue Service wants you to hang on to your important records. But you don’t have to keep all of your tax and financial records forever. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, which ever is later. So, for example, if you filed your 2013 tax return on Tax Day, April 15, 2014, you’ll want to keep those returns and those records until April 15, 2017.
Here are some tips to help you decide which records to keep and how long to keep them:
- If you don’t report all of the income that you should report and it’s more than 25% of the gross income shown on your return, you’ll want to keep those records for at least six years.
- If you file a fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, for forever.
- If you file a claim for credit or refund after you file your return, you’ll want to keep your records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
- Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
- If you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years.
- If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later.
- If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records.
- If you have property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you’ll want to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years.
- If you receive property as the result of a gift or inheritance, you’ll want to keep records that support your basis in that property. Generally, if you inherit property, your basis is the stepped up value as of the date of death; if you receive a gift, your basis is the same as the donor’s basis.
- If you receive property in a nontaxable exchange, your basis in that property is the same as the bases of the property you give up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.
- If you claim any other special tax benefits not mentioned above (for example, the first time homeowner’s credit), a good rule of thumb is to keep your records for as long as the tax benefit runs plus three years.
If you have any questions about how long to retain your records, please do not hesitate to contact us.