March 2022
Tax Planning

Now that you are getting ready to file your taxes, or it you already have you might be wondering what to do with those stacks of old tax returns and other tax records.  Can you just throw them away? Do you need to keep the hard copies? How can you get them out of sight and out of the way? Few people know how long they must keep various tax records, receipts, and full tax returns. Another question is how to safely store these documents without feeling like you are living like a hoarder. While some of those documents were important and needed to be kept, most should have been shredded and thrown away long ago.

According to the Internal Revenue Service (IRS), the length of time you should keep your tax documents will depend on the type of file you are talking about and what kind of transaction to which it relates. You will want to keep any tax records to support your income, various tax deductions, tax credit, and exemptions until at least the period of limitations for each tax return ends. If you aren’t a certified public accountant (CPA) or a financial planner, you are likely wondering, what the heck does that mean for me?

Period of Limitations

The period of time when you are still able to amend your tax returns to claim a tax credit, or refund, is called the period of limitations, according to the IRS. During this time, the IRS may still assess you with additional tax liabilities. Unless stated otherwise, a time period of limitations refers to years after the taxes were filed. Here are a few different time frames to consider holding on to those records for:

• Keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later if you file a claim for credit, or refund, after you file your return.

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

• When you own property (house, rental property, cars), you should keep all tax records for at least three years after selling that property and filing the corresponding tax returns. That may include records for depreciation, amortization, or depletion deduction, all of which will figure into whether you are going to realize a gain or loss when you sell the property.

• Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.

With the help of technology, scanning, and cloud storage it is possible to keep copies of your filed tax returns indefinitely. Having access to copies of your older tax returns may help in preparing future tax returns and making computations if you need to file an amended return.

Once you have created digital files of your paper copies, don’t just throw your old returns into the garbage. There is so much personal information on your tax returns, your Social Security number, for example. You don’t want this information to fall into the wrong hands. Once you have scanned your tax documents, make sure to dispose of them in a secure manner. At the very least, shred them before throwing them in the trash. If you have questions on what you should keep or convert digitally, give us a call at the office!

If you have questions, please contact us.

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