Filing your taxes isn’t just a once-a-year endeavor. Maintaining good records throughout the year and disposing of old ones when appropriate, not only provides you with greater confidence when you prepare your tax return, but it also provides you with documentation you may need down the road.
Lucky number six.
One of the most common questions I’m asked is, how long should I keep my tax returns? Although you can get away with keeping them only three years, I recommend you keep all federal and state income tax returns and supporting documents for a full six years.
Why so long? Once you’ve filed your returns, the IRS has up to three years to assess additional taxes. However, it can take up to six years to make a tax assessment if it determines that you omitted a substantial amount of income from your return. You may believe your returns are accurate and all-inclusive, but the IRS may feel differently.
Be sure to file your U.S. Postal Service or electronic mailing receipts with your returns, too. If your return is ever lost or misplaced, having a receipt showing the date the return was submitted will save you from penalties.
File it, but don’t forget it.
Some events produce documentation that should be kept permanently: settlement records from all of your home purchases and sales, investment purchases, divorce agreements, etc.
But just because an event ends doesn’t mean that the documentation process should. Before you move your records to the attic, remember that regularly filing “updates”—home improvement receipts, records that show a return of capital on your investments, estate and gift tax returns under which you received property, etc.—will help to compute your gain/loss when you sell.
There are other situations in which you would benefit from keeping records, including any nondeductible contributions you have made to an IRA or Roth IRA. Review your personal and financial history with a professional to ensure you have all your bases covered.
How complete are your files?
If you have any questions, please feel free to give our office a call, and one of our Tax Experts will help you.
Very truly yours,
Ken Klingler, CPA