How long should you hang on to all those income statements, receipts, and canceled checks? You know you need to keep some or maybe all of those papers—but, which ones and for how long?
It is unnecessary to save every form and receipt (such as parking, taxi, and credit card receipts) for seven years. In most cases, there’s a three-year statute of limitations during which the Internal Revenue Service (IRS) may audit you. The IRS does have up to six years to conduct an audit if you have understated your income by at least 25% or if you have a personal holding company. There is no time limit on IRS audits for fraud.
What Should I Save?
You do need to keep every check, W-2 Form, and statement from your broker, banker, and credit card company for up to six years after you file. The same holds true for all Form 1099 income slips and IRS forms beginning with the letter W.
How Do I Handle Real Estate?
If you have made repairs and capital improvements to real estate, you should save the receipts for at least three years after you’ve sold the property, and never discard records relating to home purchases.
What about Retirement Accounts?
It is important keep all records of contributions to your Individual Retirement Accounts (IRAs) and other retirement accounts. If you ever make a nondeductible IRA contribution, the IRS requires that you keep the records until all the money has been distributed out of the tax-deferred accounts.
If you’re tempted to discard everything and store the information on your personal computer, resist the temptation. This may save space at home, but remember that only the original forms (or copies thereof) are acceptable to the IRS. Your chances of going through an easier audit will increase if you go into an audit with complete records. You may want to consider the following phrase a useful rule of thumb. . .“When in doubt, don’t throw it out.”
This is provided for informational purposes only and should not be construed as tax advice. Please consult your tax advisor.