How Long Should You Keep Your Paperwork After Filing Your Taxes?

February 9th, 2010 • Related • Filed Under • by Debbie Dragon

It is a new year, and with that comes many fresh starts many of us. Many people make resolutions to purge themselves of their excess weight, as well as excess clutter, which usually includes all of the paper occupying space in the attic. Before you decide to get rid of your old tax documents, take some time to go though your old documents and see what you may need to keep.

How Long Do Tax Documents Need To Be Kept?

In general, the Internal Revenue Service (IRS) recommends that you keep all documents that document any income or deductions that are listed on your tax return until “the period of limitations.” This period applies to the length of time that you have to make amendments to your tax return for making any good faith errors, and that period is usually three years. There are, of course, exceptions to that rule. For example, if you didn’t report income that you should have reported, you should keep your records for six years. If you file a fraudulent return or do not file a return, the IRS recommends that you keep you records indefinitely. Another exception is if you claim a loss from a bad debt deduction or worthless securities. In that case, you should keep your records for seven years.

Keep Old Tax Returns

The IRS recommends that you keep your old tax returns because they can help you file future tax returns and keep track of what you filed if you need to file an amended return.

What Type of Records Should Be Kept?

The IRS recommends keeping records that relate to property until the period of limitations is up for disposing of the property. These records will be needed to figure out the depreciation, amortization, etc. and to figure out the gain or loss after selling the property. Records should be kept on the old and new property until the period of limitations expires when a nontaxable exchange has taken place.

What Other Documents That I Should Keep?

Make sure that you keep all documents that related to your income. These documents include W-2 forms, 1099 forms, bank statements, brokerage statements, etc. Keep track of your expenses by keeping all sales slips, invoices, receipts, and cancelled checks. Make sure you keep records concerning any property that you own, bought, or sold. These documents may be your closing statement, loan paperwork, and insurance records. Don’t forget to also keep track of all your investments.

Can I Shred My Documents When the Three Years Are Up?

It is always wise to err on the side of caution when it comes to your tax documents. Since the IRS has up to three years to challenge your return. Keeping all documents that relate to your tax return for four or more years is probably a safer bet.

Chances are, if you file an honest return you will not have to worry about IRS tax audit, but despite that, you don’t want to find yourself unprepared should you be contacted for one. Keeping honest and accurate tax records will insure your ability to avoid an audit or easily sail through one, if you should be audited.