The News Herald (Willoughby, OH)
How long should you keep tax documents?
The coronavirus pandemic has created some time for many of us that we would otherwise be using going to sporting events, movies and other recreational gatherings. Some people have used this time to accomplish some of those tasks that they have continually put of such as cleaning the attic, basement or garage. In this cleaning process it is inevitable that you run across old documents including old income tax filings and you wonder if you can now dispose of them.
The length of time you should keep a document depends on the nature of the expense or support that the document records. The general rule of thumb is that you should keep records that support an item of income or deductions on a tax return until the statute of limitations on the return expires. This period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax.
It is important to keep copies of your filed returns.
These copies assist in preparing future tax returns, provide information if an amended return must be filed, and provide support in the event that you are audited. At a minimum, federal returns should be kept for three years from the date that they were due as the IRS can go back and audit for up to three years in all cases.
This period of limitations is extended in other situations beyond the standard three years as well.
• In the event that you do not report income that you should report, and it is more than 25% of the gross income shown on your return you must keep your records for at least six years.
• In the event that you file a fraudulent return, you must keep your records indefinitely as there is no statute of limitations when a fraudulent return is involved.
• In the event that you do not file a return, you should keep your records indefinitely. Filing a return effectively starts the statute of limitations clock. Without a filed return the statute is indefinite.
• If you file a file an amended return requesting a claim for credit or refund after you file your return, you should retain records for three years from the date you filed the original return or two years from the date you paid the tax, whichever is later.
• If you filed a claim for a loss from a worthless security or bad debt deduction, you should keep your records for seven years.
• If you are a business owner you should keep employment tax records for at least four years after the date that the tax become due or paid, whichever is later.
Keep records associated with property until the period of limitations expires for the year that you disposed of the property in a taxable transaction. It is important to keep these records to figure any depreciation, amortization or depletion deduction and to figure the gain or loss when you sell or dispose of the property.
Although these are the guidelines set forth by the IRS, you may want to retain documents longer for other purposes. For example, your insurance company or creditors may require documents be maintained for a longer period.
When getting rid of this documentation it is important that you also properly dispose of the documents by either shredding or burning them. Since these documents include sensitive personal data such as social security numbers, birthdates and account information it is important that this information does not get into the wrong hands and risk identity theft as well.
So, you can see there is no one easy answer to the question of how long to retain documents. The IRS has their guidelines, but other factors may impact how long you should retain documentation. In our electronic world it is often easier to retain the documents as an electronic PDF or some other electronic file. This may allow you to clean up the file cabinets and clear out some room in the attic. So, put your found pandemic free time to work and get rid of some of the old and unnecessary paperwork.