Piles and piles of tax returns, papers, bank statements, and canceled checks are accumulating in your attic. Just how long do you have to keep all of this?
The general rule is that you must keep your records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, this means that you must keep your supporting items of income, deductions, and credits claimed on your tax return until the period of limitations for that return runs out.
For income tax returns, the period of limitations is the amount of time in which you can still amend your return to claim a credit or a refund or the Internal Revenue Service can assess additional tax.
Here are some guidelines for record keeping:
- If you owe additional tax but you have not understated your gross income by more that 25 percent, you have not filed a fraudulent return, or you have not failed to file a return, then the period of limitations is three years.
- If you do not report all of your income and the unreported portion is more than 25 percent of the gross income shown on your return, then the period of limitations is six years.
- If you file a fraudulent return, there is no period of limitations.
- If you do not file a tax return, there is no period of limitations.
- If you file a claim for credit or refund after you filed your tax return, then the limitation period is the later of three years or two years after the tax was paid.
- If you file a claim for a loss from worthless securities, then the limitation period is seven years.
There are certain types of records that do not fall under these general guidelines.
- Property. You should keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. If you received property in a nontaxable exchange, your basis in the property is the same as the basis of the property you gave up. Therefore, you must keep the records of the old property as well as the new property until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.
- Under the general rules, you most likely do not have to keep a copy of your wage and tax statements (Form W-2) beyond three years. However, you might need proof of wages in case there is a question about your work record or earnings for social security benefits. Therefore, it is wise to keep those forms until you begin receiving Social Security benefits.
- Keeping records for nontax purposes. Even though you might no longer need certain records for tax purposes, you should not discard them until you determine if they are needed for non-tax reasons, such as for insurance purposes or for creditors.
Copyright 2007 LexisNexis, a division of Reed Elsevier Inc.