Do you worry about what tax paperwork you should save and which ones are okay to throw away? In an article on Forbes.com, Kelly Phillips writes some very specific and informative tips in order to help out taxpayers like you who question which financial paperwork is most important to keep.
When it comes to taxes, many taxpayers are hesitant to throw away even the tiniest scrap of paper. It’s true that the Internal Revenue Service (IRS) wants you to hang onto your important tax records. But that doesn’t mean that you have to keep your tax records forever. The general rule is that you should hold onto your tax returns and supporting documentation until the statute of limitations runs for filing your tax returns or filing for your tax refund.
Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
When it comes to figuring out the statute of limitations, here’s what you need to know:
- If you file a correct and timely tax return, the statute of limitations is generally three years after the date of filing or the due date of your tax return, whichever is later (*but see the note below). Remember that you file your tax return after the tax year ends: for example, the statute of limitations for a timely filed 2016 tax return begins to run on April 18, 2017. Keep those records until at least April 18, 2020.
- If you don’t properly report all of your income (generally, if you omit more than 25% of the gross income shown on your return), the statute of limitations will be extended: you’ll want to keep those records for at least six years after the filing date. You may also want to get a better tax professional.
- If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never runs. That means that there is no time limit on IRS action: they can audit you at any time. In that event, you’ll want to hold onto your records forever. And in that case, you absolutely want to get a better tax professional and possibly a criminal defense attorney.
- If you commit a tax crime, the statute of limitations is six years from the date of the commission of the crime.
- If you have a foreign asset, and the amount of income from that asset exceeds $5,000, the statute of limitations is extended to six years.
- If you file an amended return, the statute of limitations for your original tax return applies.
(*It’s worth noting that there have been instances of late where the IRS has aggressively pursued a six-year statute of limitations. As a result, some tax professionals advise their clients to always assume a six-year statute of limitations.)
In the next blog we’ll share what documents may need special attention and what you can safely toss.
Kelly Phillips attended law school and interned at the estates attorney division of the IRS. She has written many tax-related articles and two books while also she running her own website Taxgirl.com. She currently is working full time as a Senior Editor for Forbes.com.
