Every April, two things come to mind: 1) it’s finally spring, and 2) tax season is here again. When you put your income taxes together this year, you’ll probably file away a copy of your income tax return for your own records. More than likely, you’ve done the same thing in years past. However, at one point or another, you’ve probably asked yourself: “How long should I keep this stuff, anyway?” Well, don’t be too quick to throw it all away.
A good rule is to hold on to tax records for at least six years. That includes all tax forms, investment statements, bank statements, proof of deductions, and so on associated with a particular return. In addition, any records pertaining to capital gains and capital losses, or the carryover of capital losses or charitable deductions, should be retained until they are no longer pertinent. Generally, the IRS has up to three years to carry out an audit. If the IRS suspects that income has been misreported by more than 25%, it has up to six years to perform an audit. There is no statute of limitations for fraudulent filings.
Old sales receipts or checks that may be necessary for the future calculation of capital gain or loss on an asset should be kept until they are no longer relevant. In addition, if you own a business, it may be wise to hold on to accounting ledgers, check registers, and employment contracts for at least ten years.
The bottom line: use common sense when assessing what you should keep and what you can purge. Before you throw anything away, be sure to review the item’s importance. Once you have determined what should be retained, carefully store the records in a well-marked box or file drawer for future reference. A record retained is better than a penalty gained!