Tax Record Keeping

Maintaining good records is important to help meet your tax and legal obligations. Keeping things organized can not only help you satisfy these obligations, but it may save you time and money later. So, what should you do with all the forms, receipts, statement and other records once you have filed your taxes? Do you need to keep them, or can you shred them? And for how long?

You've likely heard that seven years is the perfect period to hold on to tax records, including returns. The actual time to keep records is not that simple and generally not that long. In most cases, three years is all you need. According to the IRS website, they have three years after the due date of your return (or the date you file it, if later) to request an audit. So, you should hold on to any papers that report income or gains (W-2, 1099, 1099, etc.) along with donations (unless you choose not to itemize deductions) and retirement plan contributions for at least three years from the current one.

But you should keep some records even longer. There are six, seven and indefinitely scenarios, depending on the situation.

For example, there is a six year statute of limitations that applies if you have substantially underestimated your income. Someone who is self-employed and receives 1099’s from multiple sources, can easily miss one and underestimate taxes. Another reason to keep records for six years is if you buy and sell real estate. The IRS has six years to audit property values if they suspect someone overestimated property value to minimize taxable gain.

Keep records for seven years if you file a claim for a loss from worthless securities or bad-debt deduction. Then, there is the “keep indefinitely” scenario if you haven't filed a return, or if you have filed a fraudulent return, there's no statute of limitations for the IRS to seek charges against you.

So, you can see there is no “one timeframe fits all” when it comes to knowing how long to keep your tax forms but in general, three years is all one needs. Remember you can drop off old files and forms to our office in China Grove to be shredded. We are happy to provide a safe and secure way to dispose of old papers as a free service to our clients.