We’ve all been faced with the question: “Should it stay, or should it go?” You may keep some of your past financial statements or tax records stored away in a box (or boxes!) in your basement or attic. At one point or another, you’ve probably wondered if you’ve held on to all this “stuff” for long enough. Well, don’t be too quick to throw it all away.
As a rule of thumb, you should hold on to tax record for at least six years. That includes all tax forms, investment statements, bank statements, proof of deductions, etc., associated with a particular return. In addition, any records pertaining to capital gains and capital losses, or the carryover of capital losses and charitable deductions should be retained until they are no longer pertinent. Generally, the IRS has up to three years to audit you. If the IRS suspects you have misreported your income by greater then 25%, they have up to six years to perform an audit. There is no statute of limitations for fraudulent filings.
Old sales receipts or checks that may be necessary for the future calculation of capital gain or loss on an asset should be kept until they are no longer relevant. In addition, if you own a business, it may be wise to hold on to accounting ledgers, check registers and employment contracts for at least ten years.
The bottom line is to use common sense when assessing what you should keep and what you can “purge”. Before you throw anything away, be sure to review the item’s importance. Once you have determined what should be retained, carefully store the records in a well-marked box or file drawer for future reference. A record retained is better then a penalty gained!In IRS Publication 552, Record keeping for Individuals, the IRS laid out the rules in layman terms. Click here to view. – (Adobe Required)
Quick view of what you should keep around.
Tax Returns – Never Discard
Receipts for Charitable Donations – Generally 6 Years
Cancelled Checks -Generally 3 Years
Purchase of Capital Assets -6 Years After the Sale
Legal Documents -Indefinitely
Home Ownership Records -Indefinitely
Business Records and Ledgers -10 Years
You should consult a tax professional when applying any of these tax planning suggestions.