Charlotte Women's Magazine - October 2009
How Long Should I Keep My Records For The IRS?
Anybody that has moved across the country or just across town has the “box”. You know the box, the one with old tax returns and records used to prepare tax returns from long ago. How long are you required to keep old tax information? What is the statute of limitations? Let’s take a closer look at these questions to reduce the weight and size of the box.
The burden of proof lies with you, the taxpayer. You must be able to prove income and deductions. If you are working for someone and earning a wage, the records are straightforward. The proof of income and expenses becomes more complicated if you are a landlord, self-employed, own a business or are an investor.
The IRS explains how long you should keep tax returns and records is based on a period of limitations. The period of limitations is the time you can go back and amend a tax return for a refund or the time period the IRS can assess additional tax, which is three years. The IRS suggests you should keep your returns for three years after you filed your original return or two years from the date you paid the tax, whichever is later.
Just what supporting documents should be kept? You should keep W-2s, mortgage interest and real estate taxes paid, records of charitable contributions, interest income statements, brokerage statements, rental income and rental expenses, retirement plan contributions, health savings account contributions to name a few. Basically, keep any supporting documents of any item that appears on your income tax return.
For most people, records should be kept for a minimum of three years. However, you should keep track of any money that you put into a property for as long as you own the property. This would include your personal residence, vacant lots, rental property, commercial property or depreciable equipment used in your business. And then keep the information for a minimum of three years after the property is sold. Depreciation records must also be maintained and retained as long as you own the property. If you exchanged one property for another by trade or exchange, you should keep records from the “old” property and the “new” property.
Those with employees should keep all records of employment taxes for a minimum of four years after the tax is due or paid, whichever is later.
For those who claimed a bad debt or wrote off a worthless security on their tax return, records must be kept for a minimum of seven years.
There is no statute of limitations for taxpayers who have filed a fraudulent tax return or have not filed a tax return for a particular year. If a person has underreported their gross income by more than 25%, the statute of limitations is six years.
Your insurance company or your creditors may require you to keep records for longer periods than the IRS does.
At our office, we advise clients to keep information for a little longer than the minimum time frames. We often tell clients to keep information for seven years rather than three and to keep a copy of their completed tax return and W-2s forever. The tax returns and W-2s do not require that much storage space. And what is one more box to move around?