Spring Cleaning and Tax Records

It's spring time! Tax season is over and now is the time to start cleaning out those files. If you’re deciding what records you need or want to keep, you have to ask what your chances of an audit are. You should keep records to support those items until the statute of limitations runs out.

Assuming that you’ve filed on time and paid what you should, you have to keep your tax records only three years. However, some records need to be kept longer.

The three-year rule relates to the information on your tax return. But, some of that information may relate to transactions more than three years old. For example, asset purchase information should be retained for as long as you own the asset and three years after the final disposition is reported.

The Three Year Rule

The statute of limitations usually runs the later of three years from the date you filed your return or the date you paid the tax. There are some exceptions:

1. If you didn't report all your income and the unreported amount is greater that 25% of the amount reported, the statute of limitations is generally extended to six years.

2. If you claimed a loss from a worthless security, the limitation is seven years.

3. "Fraudlent" returns or if you did not file a return have no statute of limitation. Records should be kept forever as the IRS can request and audit at any time.