Tax Records – What to Keep and What to Toss

Now is the time to go through your boxes, bins, folders, and files of tax records and discard what you do not need. Not only will you clean out your office or home, but you may find receipts you forgot you had. Think additional deductions and more money in your pocket!

The IRS has a statute of limitations during which they can audit your tax returns. After that, you can discard those records because the IRS is legally prohibited from questioning or auditing those returns. Of course, all files should be shredded for safety.

One warning – if you file a fraudulent return or do not file at all, the limitations listed here do not apply, and the IRS can come after you at any time.

The Three-Year Rule for Files

The rule of thumb for Internal Revenue Service audits is three years from the date you file your return. Two exceptions to that are self-employed individuals or those with complex tax situations. In those cases, the recommendation is to keep your records for six years. The IRS has up to that period to audit you if there is a suspicion that your income was underreported by more than 25 percent. Additionally, if you claimed a deduction for worthless securities, keep your records for seven years.

Keep these items in addition to your tax returns for three years after the date you file:

• W-2 employer wage reporting forms
• 1099 miscellaneous forms for freelance income
• Records of earned interest
• Charitable contributions receipts and cancelled checks
• Dividend and capitals gains distributions (important – keep all stock and security records until three years after you sell them)
• Proof of Health Savings Account (HSA) deductions – medical bills and receipts
• Home expenses including improvements
• Mileage logs, tax diaries, receipts, and other records that support deductions
• Brokerage and bank statements
• Non-residential real property (remember – this is depreciated over a 39-year period so keep those receipts)
• Social Security records
• 529 College Savings Account documentation for higher education expenses

How to Keep Your Records

It is essential to create a system that works for you to keep track of your files. You can save space in your office or home by choosing to scan your receipts and tax records and store them electronically. Make certain to back up your hard drive to ensure you have a copy of these records. Shred all documents to prevent access to your private data. In the case of an audit, you simply need to print out a copy of your electronically stored records and present that to the IRS.

If you have any questions about what records to keep, or for how long you need them, please contact Randee Abramson, your credible, professional, and accessible Coral Springs CPA for all your accounting needs.