With the start of a new year, some of us are looking at our overflowing storage areas containing old records (and we don’t mean vinyl). We then vow to get rid of the ones we no longer need.
So, how long do you need to keep tax documents?
That depends.
The IRS says the basic rule is to keep records for 3 years, but at least 2 years after the date you paid any tax due, if later. (For example, you had an amended return.) That rule extends to 7 years if you took a deduction for worthless securities or a bad debt deduction.
Oh, and if you were kind of … bad … and didn’t report income you should’ve reported, and if that understatement was more than 25% of your return’s gross income, it’s 6 years.
If you haven’t yet filed a return, or if you were exceedingly bad and filed a fraudulent return, keep your records indefinitely.
For businesses that pay employees, you should keep employment tax records for at least 4 years after the date that tax becomes due or you pay it — whichever’s later.
For property acquisition-related records, including both real estate (personal use and/or business/rental use) and business/rental equipment, furniture and fixtures, keep records until the applicable statute (3-year default) expires for the year in which you dispose of the property.
If you acquired your business/rental real estate in a 1031 (like-kind) exchange, keep the records on both the old and new properties until the period of limitations expires post sale.
You may have reasons to keep those records even longer than the IRS requires. So before chucking them into the recycling bin, check with insurance companies or creditors.
Confused? Is it 3, 4, 6 or 7 years or indefinitely? Mind-blowing! This is why we’ve kept that stack of boxes since 1967 and have never thrown anything away.
Here’s the simple solution:
- File your income and payroll tax returns on time.
- Report all your income.
- Don’t commit fraud (please).
- Keep your tax records for 7 years.
- Keep real estate-related documents for at least 3 years after the property is sold.
Simply follow that road, and your condition will certainly improve!
