How long should you keep tax records?
Most records can be safely discarded after three years, but you'll want to keep some types of paperwork longer. Yes, you can keep those files electronically.
This post is by Kelly Phillips Erb at Forbes.com.
You’d think that the week after Tax Day would be quiet, but it’s not. Once tax time has come and gone, taxpayers are not completely off the hook. You’ll want to keep records and documentation on hand in the event that the IRS comes calling.
Here are some tips to help you figure out which records to keep and how long to keep them:
- As a rule, keep your tax records and supporting documentation until the statute of limitations runs out for filing returns or filing for a refund. For most taxpayers, that means you’ll want to keep those records for three years following the date of filing or the due date of your tax return, whichever is later. So, for example, if you filed your 2011 tax return on April 17, 2012, you’ll want to keep those returns and those records until April 17, 2015. (Post continues below video.)
- If you don’t report all of the income that you should report exactly (if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended. You’ll want to keep those records for six years.
- If you file a clearly 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, forever (really, it’s much less work to simply file).
- 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 claim depreciation, amortization or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. They include deeds, titles and cost basis records. Similarly, if you claim any special deductions or credits, you may need to keep your records a little longer than normal (for example, 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 are paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
- You’ll want to keep your records organized -- I recommend arranging them by year -- and store them in a safe place.
Finally, even my mom realizes the benefits of technology: She texted me yesterday to ask whether my dad had to print out his tax returns or if he could just save them on his computer. To save space (and quite possibly, your marriage and/or sanity), you may absolutely scan your records and store them electronically. The IRS has accepted scanned receipts since 1997.
You just need to ensure that your scanned or electronic receipts are as accurate as your paper records, and you must be able to index, store, preserve, retrieve and reproduce the records. In other words, you need to have your records organized and be able to produce them in hard copy form if needed.
One quick word of warning: Even if records aren’t needed for tax reasons, you may need them for other reasons. Be sure to check with your mortgage company and tax professional before tossing important records.
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