How Long Should You Keep Tax Documents?
You may want to celebrate once tax time is over but what should you do with all those 1099’s, W-2’s, receipts and other documents? This post will serve as a guide to how long you should keep tax documents.
IRS: How Long Should You Keep Tax Documents
Period of Limitations Rule
The length of time for record keeping depends on the specific event, expense or action it records. As a general rule, the IRS advises you keep documents until the “period of limitations” for that tax return expires. This includes documents supporting income, deductions or credits indicated.
The period of limitations refers to the duration of time in which you can amend your tax return or in which the IRS can impose further taxes.
Income Tax Return Documents
For tax return documents, the IRS advises that you keep records:
- For three years if items 4, 5 and 6 below are not applicable
- For three years from the latter of the time you filed your initial return or 2 years from the date of tax payment if you file for a credit or refund after the return is filed
- For seven years if you file for a bad debt deduction or a loss due to worthless securities
- For six years if you do not report income that you ought to have reported and it represents over 25 percent of the gross income indicated on your return
- Indefinitely if you do not file a return
- Indefinitely if you file a fraudulent return
- For at least four years after the latter of the due date or the payment date of taxes owed.
How Long Should You Keep Tax Documents: Property-Related
Besides tax return documents, there are a plethora of other records of that should remain in your filing cabinet in the near term.
Keep documents connected to property until the period of limitations expires for the year when you disposed of the property. This enables you to later calculate the depreciation, amortization or depletion deduction. This is vital for accurately assessing the gain or loss upon sale or disposal of a property.
If the document related to a property received in a non-taxable exchange, keep the documents for the old property and the new one. Keep them until the period of limitations expires for the year when the new property is disposed.
Record Keeping after Period of Limitations Expires
Even after the period of limitations has expired, don’t toss those documents in the shredder immediately. Make sure those documents aren’t needed by other entities or for other purposes. For example, insurance companies and creditors may also need those documents.
Latest posts by Manasa Reddigari (see all)
- How To Pay Your Estimated Taxes - October 16, 2017
- Small Business Perks You Can Offer With Little Budget - October 9, 2017
- Better Business Bureau: What Small Businesses Need To Know - October 3, 2017