Spring Cleaning? Can You Toss Those Tax Records?

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Ever stare at boxes and boxes of files in your garage or your basement and get an itch to clean up? Or are you the sort who pushes these boxes out of sight and is quite happy to let them be? Whichever personality best describes you, you will want to read this before you decide to throw those papers or cover them up with something fancy, call it art and make it a fixture in your basement!   

A question I get all the time is, "How long should I hold on to my tax records?" The answer to that questions is the ubiquitous, "It depends!" Yes, I know there are many situations that effect the length of the time you have to preserve your papers. Here's your check list, starting with the longest:  

A. Keep copies of all your tax returns indefinitely. Supporting papers to the returns filed timely can be discarded 3 years from due date of filing the returns. 

B. Keep supporting papers indefinitely if: 

• You did not file a tax return at all. 
• You filed a fraudulent tax return. 
• You were a US Citizen or a US Green Card holder who surrendered your citizenship or your green card. *

C. Keep records for 7 years if you file a claim for a loss from worthless securities or a bad debt deduction. 

D. Keep records for 6 years if you did not report income that should have been reported, and such income is more than 25% of the gross income shown on your tax return. 

E. Keep employment records for at least 4 years after the due date or is paid, whichever is later. 

F. In all other cases, keep records for at least 3 years from the date you filed your original return or the date your taxes were paid whichever is later. 

Records Connected To Property: If there is purchase, records should be kept to calculate cost of property, depreciation, depletion, repairs etc, till the property is sold. If a property was sold, generally one should keep records till the statute of limitations run out on reporting the sale, which is 3 years. 

Note: One should also check with other agencies like your insurance company, health insurance company or creditors to see how long records pertaining to the information should be kept. Their requirements may be different from that of the Internal Revenue Service. 

* UPDATE added May 8th, 2017

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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxbiz.com.