How long to keep your tax records?
Documents tend to pile up quickly and–if you have been working from home–that means more paperwork needs to be sorted through each week. Perhaps you have been wondering when the right time is to dispose of the documents and receipts that pertain to your tax filings.
Whether you have personal or business files, you can be in violation of the law when you shred your documents too soon or sometimes when you keep them too long. The information below will provide the basic guidelines to establish a document destruction plan for your tax files.
Things to keep in mind:
- Figure out if your documents have expired: Find the period of limitation on your tax filings. Period of limitations allows you to amend your tax return or be re-evaluated for additional tax. If your documents were used to report income or claim tax credit or deductions, they should be kept until that period of limitation has passed.
- Always keep copies of the tax returns: It is a good practice to carefully organize the copies of your tax returns so that they can be easily accessed. They can be used to prepare future tax returns or assist in filing an amended return.
- Keep documents related to property: They are used to establish amortization, depreciation or depletion deduction. You will also need them to demonstrate gain or loss if you sell the property.
- Keep documents that serve a purpose beyond tax filing: Some of your documents may be required to be kept longer by your creditors or insurance company. Some examples include extended warranties, guarantees, proofs of purchase, and appraisals of value.
According to Internal Revenue Service (IRS), here are the periods of limitations for income tax returns:
- Keep your tax returns and supporting documents including Profit/Loss statement for 3 years after the return has been filed.
- If you did not report income or file your return, keep documents indefinitely.
- Keep documents for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
- Keep employment tax files for a minimum of 4 years after the date the tax is due/paid.
The information above serves as a general guideline and is not intended to be used as legal advice. To ensure adherence to current legal requirements for your area, contact your either your federal, state, or local government or your preferred legal expert(s).
Information for this article has been sourced from https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
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