Well, it’s Friday the 13th and I figured what’s more scary than taxes? One of the most frequently asked tax question is how long you must keep tax documents. You want to know the answer? It depends. Isn’t that the answer to everything these days? Anyway, here are some general rules for keeping your records straight with the IRS.
Three Years Might Be Enough
Most tax documents can be shred after three years. Why? Three years is the statute of limitations for tax audits at the IRS. That means that come April 15th, 2009, the IRS can no longer audit you for your 2005 tax return. Why don’t you invite your friends over that day and have a shredding party? You can even have them bring over their papers! However, don’t shred them if you filed for an extension for your 2005 return. You must hold onto those papers until three years after the due date of the extension.
Things to Keep Beyond Three Years
Wait! Step away from the shredder! There are some things that you should keep beyond three years. First, you should keep any records you have on appreciable assets that you currently own. That would include stocks, bonds, antiques, real estate, land, jewelry, etc. Chances are, you will sell these one day and having these documents will be crucial in making sure you are paying the right amount of tax. For example, if you do improvements to your home, it adds to the basis of it. This will end up helping you in the end and may lower your tax on the asset. Make sure you keep all of the documents that shows the costs of the improvements. The IRS is all about showing the appropriate documentation backing your calculations.
Another thing to remember is that if you “forget” to report income, the IRS can go back up to six years. Also, if you plan committing tax fraud, you might as well get used to metal bars because the IRS will find you and they can do that whenever!
Where to Put Your Documents
Now that you know what to keep, where should you keep it? The best place to keep your files is a bank safe deposit box (which is tax deductible if you itemize by the way). If there is no way you can have a safe deposit box, invest in a fireproof safe
I know it’s a pain to keep all of these records, but believe me, it’s much better than having to pay penalties and interest on taxes that you have to pay due to not having proper records.
Do you have any particular tax questions? Submit them here. As I stated before, I am studying to become an enrolled agent. Answering your questions will be a great learning experience for me!
A lot of tax documents are issued electronically now, too, so it’s not hard to hold onto them on your computer for years on end. Of course, backups should go the same place where the paper ones would go.
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If you’re going to put stuff in a bank deposit box, you want to make sure the executor of your will can get access to those documents quickly. When something important is in there, not being able to get at it until the estate is probated can really make things difficult for everyone who survives you.
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Thanks for the advice! I always wonder how long to hold on to those old documents, though I have finally decided that I can let go of my high school tax returns.
I guess another idea is to scan it all and put it on a disk, which can then be sent to a family member to keep for me.
Thanks!
If you use a CPA, make sure that the CPA has a document retention system. More often than not, you have probably given your CPA the authority to discuss your taxes directly with the IRS.
In a way this report is misleading i.e. I am right now being pursued by the State of Ohio for taxes from 1995. I paid the tax but they say a mistake was made. Is it that this is state issue. I find it completely unfair as this is 2012 and they tell me there is no statute of limits on mistake they have found. I kept my returns for 10 years and was moving and disposed of any acct. Now they say I owe 6000.00. Any advise