Everyone is trying to cut down on clutter, but some paperwork is important to keep—at least for a while. Take tax returns, for example. How long should you hold on to them to avoid running afoul of federal authorities?
Well, it depends. The general rule is that you should keep those tax returns—and all their supporting documentation—until what the Internal Revenue Service calls “the period of limitations” runs out. “Tax documents can include receipts, bank statements, 1099s, and more,” Dr. Cozette M. White, an accountant and tax resolution expert at White Tax Services LLC in Oxnard, California, tells Credit Karma. “If you’re one of the unlucky few to be audited, these records will be vital to fending off the IRS.”
So what’s a period of limitations? That’s the time frame during which you can either amend your tax return to claim a refund or when the IRS can charge you an additional tax. The period of limitations can differ depending on your circumstances, but here are some guidelines for how long you should keep your records:
Filed for a credit or a refund?
Hold on to your tax returns for either three years from the date you filed them, or two years from whenever you received your refund. (Pick the later date of the two.) And stash employment records for four years after your tax payment is due or when you pay it (whichever comes later). Find out 13 secrets the IRS won’t tell you about tax planning.
Claimed a loss from bad debt or worthless securities?
Keep your paperwork for six years. If you own property and sell it, you should hold on to those records for at least three years, according to Credit Karma. Don’t miss 13 of the craziest tax deductions ever claimed.
Didn’t report part of your income?
Store your supporting paperwork for six years if you didn’t report income and it’s more than 25 percent of your gross income on the return.
In general, “If you think you’re potentially at risk of an audit, you should keep your documents longer than usual,” Josh Zimmelman, owner of Westwood Tax & Consulting in New York tells Credit Karma. “Being at risk for an audit doesn’t mean you’re doing anything wrong. It just means that your tax situation might raise a few red flags that require the IRS to take a closer look.” Here are 13 secrets your tax planner won’t tell you.
Didn’t file a tax return at all or sent something fraudulent to the IRS?
Better keep those records indefinitely. Next, find out 32 things your tax accountant won’t tell you.