Dear XXXXX -
There are several ways to answer your question, and several things for you to consider in dealing with this issue:
1) HOW LONG YOU SHOULD KEEP YOUR TAX
RECORDS, BECAUSE A GOVERNMENT
ENTITY COULD RAISE ISSUES ABOUT YOUR FILING
AT A LATER DATE:
should retain their income tax filings
(and relevant documents that support those tax returns
) for a period of at least seven years before disposing of them. If your return
is selected for adjustment
because of "matching errors" between what you reported, and other payers have reported to IRS
(or a state
jurisdiction), you will normally know within three years after your return has been filed whether or not that tax entity intends to audit
or make additional corrections or adjustments to it.
However, be advised, that in instances where the tax entity alleges fraud or blatant omissions and misstatements were made by the taxpayer or his agents, tax returns CAN be audited and adjusted for a period of up to seven years after their submission. Usually, the average taxpayer need not be concerned about a seven year audit period. However, I mention that in case there are some issues you know about (which I don't) that is prompting your question.
2) HOW LONG SHOULD YOU KEEP YOUR TAX RECORDS AND VAROUS OTHER DOCUMENTS FOR PURPOSES OTHER THAN COVERED IN #1:
This is where you need to put "your thinking cap on", and ask yourself what is in the records I am intending to dispose of - - - which I may, "for God knows" reason need at a later date.
a) You may need to be able to prove (to a future employer, state or county agency, court of law
, etc.) that you really DID work for "Acme Aerospace Industries" at some point. The proof is recquired because of a future job interview, state or county evaluation of your qualification for some job training program, or participation in a civil action filed by former employees of "Acme Aerospace Industries" regarding their pension
plan. Unfortunately, you chucked those tax returns which had copies of your W-2
's, pension contributions, etc., in the trash a year before you discovered that "Acme" was out of business, "broke their papershredder the week before they closed up" and no records are available, and all the people you used to know and work with are now dead and long gone. No one but you can vouch for your employment history in many cases. Even the IRS has a hard time reproducing your return after several years have passed. Is your tax retun really that bulky? HINT: I have every tax return I ever filed. It doesn't really take up that much room.
b) Here is another consideration: If you have been a sole proprietor
, many of the assets
you have purchased over the years are referenced in the tax returns you have been filing (for the last 25 years or so). You may keep wonderful records today on Quickbooks and you are not really concerned when you are informed you are being audited for 2003. But, when you get into the audit, the IRS auditor want to review your deprciation schedules. He/she questons whether or not many of the assets you are currently depreciating are valued properly. The reference point to that value comes from 1995 when your conversion of an office in the home took place, and various improvements to your home became depreciable assets your business employs. HINT: Those tax returns really aren't taking up that much space, are they, Candace?
c) Taxapayers walk in my office every year informing me they sold an old stock they purchased back in 1980 and sold in the last tax year. I haven't done their returns that far back. They haven't kept any of their returns that far back either. It's a shame too, because had they keep their 1980 return, they sold (and showed the purchase) on that identical security. Unfortunately, the broker and brokerage who sold them the stock are dead or out of business. No records exist to determine their cost-basis in the security. HINT: WHEN YOU ARE LOOKING AT DISPOSAL OF ANY FINANCIAL PAPERWORK - ask yourself:
Do I still own (and perhaps - am I still paying for) that house, car, security, air conditioner, major improvement to a home like a roofing job, etc.? Then you know what, you owe it to yourself to save the contract, checks that were used to make the payments, purchase invoice, warranty information, name of the realtor and associated closing papers, etc. You never know when and how that may become important in your life.
When I go through old bank statements, if I am paying (by installment
) on something, I pull out every check (or keep the statement that shows the withdrawal electronically) until that thing has long been paid for. I can't tell you how many financial banks, brokerage houses, insurance companies, realty companies, title companies, etc., have gone out of busiess or been acquired and merged with larger concerns over my professional lifetime. If you are relying upon them to tell the story for you (that may need to be told), good luck! If you are dealing with a merged bank that can't seem to find any records of your transactions
from 10 years ago - and they think you owe them some more money on something - grab your ankles!
GET MY POINT! Don't be too quick to throw things (like financial records) away to make room for your shoes in the closet. Those records may - just may - be worth a whole roomfull of shoes to you when you find you could have benefited from them in the years down the line. I had a client get an entire roof redone because they kept their cancelled check, contract agreement, and the business card of the dealer who had re-roofed their property
12 years ago. The dealer was long out of business and deceased. The manufacturer of the tiles claimed they did not know anything about the dealer the client had paid to do the work. However, when they could proove all of the above, the manufacturer honored their "25 years guarantee" on the work, and the whole job (materials and labor) were free! By saving those receipts, they saved over $ 20,000 on the cost of a new roof for their home!