How Long Should I Keep My Tax Records?

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How Long Should I Keep My Tax Records?

The Internal Revenue Service (IRS) has certain firm guidelines for taxpayers on how long they should maintain their tax documents.

According to the IRS, the period of your tax record keeping is determined by the “activity, cost, or event” affecting those documents. These actions and dates are significant because they affect the statute of limitations on any revisions to your tax return, as well as the federal government’s power to collect further tax payments from you.

The statute of limitations is the time restriction for amending your tax return to receive a credit or refund, or for the IRS to levy further tax.

The following information is taken from from IRS.gov and explains how long you should retain income tax returns. The stated years begin once the return is submitted. Any returns submitted prior to the due date are deemed filed on the due date.

  1. If scenarios (4), (5), and (6) do not apply to you, keep records for three years.
  2. If you submit a claim for credit or refund after filing your return, keep 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.
  3. If you make a claim for a loss from worthless securities or a bad debt deduction, keep documents for seven years.
  4. If you fail to submit money that you should have reported and it exceeds 25% of your gross income on your tax return, keep records for six years.
  5. If you do not submit a return, keep your records forever.
  6. If you submit a bogus return, keep records forever.
  7. Keep employment tax records for at least four years after the tax is due or paid, whichever comes first.
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Important Questions

When deciding whether to preserve or throw away a document, ask yourself the following questions:

Are the records connected to property?

According to the IRS, you must keep property records until the statute of limitations for the year in which you dispose of the property in a taxable disposition ends. The purpose of keeping these records is to calculate any depreciation, amortization, or depletion deductions, as well as the gain or loss when you sell or dispose of the property.

In general, if you got property via a nontaxable exchange, your basis in that property is equal to the basis of the property you gave up, plus any money you paid. You must preserve the records on both the old and new properties until the statute of limitations for the year in which you dispose of the new property in a taxable disposition ends.

What should I do with my records for nontax purposes?

According to the IRS, when tax records are no longer required for particular tax purposes, they should not be disposed of until it is guaranteed they will not be required for other reasons. Other organizations often demand tax paperwork for their own reasons. Insurance companies and creditors often request that you maintain files for longer than the IRS mandates. When in doubt, choose the safe route and maintain the records.

Advisor Insight

If the IRS discovers a significant problem in your current return, they may review your tax history for the previous six years. However, you may choose to hold your returns for an even longer period of time. Your tax records provide a snapshot of your financial life. They include critical cost basis information that may be difficult to locate in a few years. Because account custodians are now obligated to disclose and transmit cost data with assets, this is less of a concern. But why should you depend on the custodian when you have the information? Your return will also confirm your income and if you contributed to a retirement plan. Best practices recommend that you keep your tax returns and related records for as long as feasible. It’s a simple thing to accomplish in this day and age of computerized filing and record keeping.

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Wealth Resources Group Westlake Village, CA Neal Frankle, CFP®

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