The answer to that question depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitation runs out for that tax return.
What Is the Period of Limitations?
The period of limitation is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. The 7 limitation periods listed below are confusing and reflect the periods of limitation that apply to income tax returns according to the IRS. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
I have personally kept every filed tax return and all corresponding documentation I have ever filed with the IRS. That would ultimately be my advice to you as well, if for no other reason than helping to prepare future tax returns or making computations if you file an amended return.
Periods of Limitation That Apply to Income Tax Returns
The IRS recommends the following.
#1. Keep records for a minimum of 3 years as long as #’s 2, 3, and 4 below do not apply to you.
#2. Keep records indefinitely if you do not file a return.
#3. Keep records indefinitely if you file a fraudulent return.
#4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
#5. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
#6. Keep records for 7 years if you file a claim for a loss from worthless securities or a bad debt deduction.
#7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
If one of your records pertains to purchased property, it is generally advised to keep the records relating to the property until the period of limitation expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property. Another reason to just keep everything forever.
If you have received property in a nontaxable exchange (a trade of some sort), you may be asked by the IRS to prove that you did not gain additional equity in the transaction. Therefore, you would need not only your new property records but the old as well until the period of limitations expires for the year in which you dispose of the new property.
Another thing to considering is keeping documentation for a non-tax purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.
Just keep your records forever and you will always be safe.
As you can see, tax laws are very complicated and if you owe any tax debt of any kind and are wondering how to deal with it, please contact us to schedule an appointment for a free initial consultation. If you would like to discuss your options for dealing with your other debts via Bankruptcy, we can answer all your questions regarding Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, stopping a foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging medical debt, personal loans, payday loans, credit card debt, etc. The attorneys at Bond & Botes can alleviate your stress! We want to help and we can help you!