It’s now summertime, officially, and you still haven’t finished your spring cleaning. So, what tax records do you need to keep while catching up on your spring cleaning this summer? You need to give some thought before throwing out those old tax records.
What tax records should I keep?
This question requires an analysis of why you would need any of your tax records, other than shoe box filler of course. If you’re “lucky” enough to have your tax returns audited by the government, the burden of proof will be yours to substantiate the entries, deductions, and statements on your tax return. This is the primary reason for keeping your tax records. Therefore, the records you need to hang on to are the documents that you used, or should have used, to prepare your tax returns. This often includes, among other things, receipts, cancelled checks, bank statements, income statements, repair statements, mileage logs, withdrawal statements, and property transfer closing paperwork.
How long do I need to keep my tax records?
This is really a question of, how long is the government allowed to pester you for verification of the representations on your tax returns. If you file a federal income tax return, you will you need to keep your tax records for three years from the date the tax return was due, or the date the tax return was filed, whichever is later. However some states, such as California for example, may audit your records longer than the IRS can; so you will need to check your state’s rules to verify how much longer you need to keep your records depending on which state tax return(s) you file.
There are exceptions to the IRS’ three year rule that require you to keep records for longer than the three year period. These exceptions include when you don’t file a tax return, when you understate your income, or when you file a fraudulent return. Ironically, if you fall into one of these categories, you likely don’t have accurate records to begin with; so the government truly has you on the hook for a serious tax problem longer than taxpayers who keep accurate records. It’s also generally a good idea to keep tax returns and supporting documentation for the tax years when you acquire or transfer property that may be used to calculate gains or losses on a future tax return. And of course, there may be non-tax reasons to keep documentation accessible longer than the government’s need for evidence.
These days, converting files to an electronic format is pretty accessible to anyone with a scanner or near a print shop. So, if you’re not sure whether to dispose the document after the appropriate time has elapsed, at least scan and save the documentation to give you peace of mind. Lastly, when disposing of old tax records and supporting documents, be smart, securely shred the documents … your trash may be a thief’s treasure.