WHAT TAX RECORDS CAN INDIVIDUALS THROW AWAY?
The deadline for individual taxpayers who extended their 2019 tax returns has now passed. The original April 15 filing deadline was extended this year to July 15 due to the COVID-19 pandemic and the final extended due date was October 15. If you are finally finished filing last year’s return, you might wonder: which tax records can be tossed once everything is complete? Now is a good time to go through old tax records and see what you can discard.
The General Rules
At a minimum, you should keep tax records for as long as the IRS has the ability to audit your tax return or assess additional taxes. Generally, this is three years after you file your return.
However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income (AGI) by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. So a general rule of thumb is to save tax records for six years from filing, just to be safe.
Keeping Some Records Longer
Though the recommended timeframe for keeping tax records is six years, there are some tax-related records, beyond the statute of limitations, you should keep for longer.
- Keep the tax returns themselves indefinitely, so you can prove to the IRS that you actually filed a legitimate return. (There is no statute of limitations for an audit if you did not file a return or if you filed a fraudulent one.)
- Retain W-2 forms until you begin receiving Social Security benefits. Questions might arise regarding your work record or earnings for a particular year and your W-2 helps provide the documentation needed.
- Keep records related to real estate or investments for as long as you own the assets, plus at least three years after you sell them. Report the sales on your tax return.
- Keep records associated with retirement accounts until you have depleted the accounts and reported the last withdrawal on your tax return.
Other Reasons to Retain Records
Keep in mind the suggestions listed above are the federal tax record retention guidelines. Your state and local tax record requirements may differ. In addition, lenders, co-op boards and other private parties may require you to produce copies of your tax returns as a condition to lending money, approving a purchase or otherwise doing business with you.
If you have questions or concerns about which tax records you should keep or throw away, please contact us.